Contract savvy
EDWIN GIESTEIRA
Edwin Giesteira qualified with a BSc (QS) at the University of Pretoria in 1978. He acquired an MSc (Real
Estate) at the same university in 2011. Edwin became a Fellow of the Association of Quantity Surveyors
(Southern Africa) in April 2013 and has worked for various building contractors mainly as senior quantity
surveyor. Projects include Unitas, Muelmed and Pretoria Heart Hospitals and the Carousel. He was a
director of Stocks Leisure Developments for five years. He has stood in as lecturer for Quantities to BSc
Construction Management Honours students at the University of Pretoria for a semester. Edwin has
been consulting to project managers and contractors for 10 years but now only consults on construction
disputes or acts as adjudicator or arbitrator in disputes.
CONSEQUENCES OF TERMINATION
OF PRINCIPAL BUILDING AGREEMENTS
By Edwin Giesteira
I share some thoughts on the consequences of the termination of a
principal building agreement by the employer due to contractor’s default.
Part 2 of 3.
CONSEQUENCES OF TERMINATION BY
THE SUBCONTRACTOR IN TERMS OF NSSA
CLAUSE 38.3
There are several provisions peremptorily making the employer
liable for certain obligations 1 and it is submitted that, with
the contractor removed, this creates a contract between the
employer and the subcontractor once the principal building
agreement is removed by termination in terms of clause
38.3. The reason this is possible is that the principal agent,
acting on behalf of the employer, is extensively engaged in
the appointment of the n/s subcontractor and instructs the
contractor to appoint the n/s subcontractor on the basis of the
N/S Subcontract Agreement which incorporates such terms.
They have therefore incorporated terms in the n/s agreement
which create a conditional and subsidiary contract between the
employer and the subcontractor which comes into effect upon
the implementation of the termination provisions and allows the
subcontractor to sue 2 the employer for specific performance.
Clause 38.5.1
Execution of the N/S works shall cease. The subcontractor shall
remain responsible for the n/s works [8.1] until possession is
relinquished to the contractor.
The subcontractor must immediately take steps to stop
its work on site and to formally relinquish possession of the
subcontract works to the contractor and remains responsible
for the n/s works until then – this sounds like a contradiction
as, in the case of a clause 38.3 termination, the contractor has
by now also been terminated. However, the contractor is also
obliged [36.5.1] to hand over the works and record status, etc.
therefore, if done without delay, the process can dovetail with
the contractor’s hand over of the works.
It is submitted that where neither the contractor nor the
employer or its agents have notified the subcontractor of
the termination, the employer may have to step in as the
knowledge was within its purview and it failed to advise the
subcontractor who it knows does not have access to such
information to the latter’s potential prejudice but this is
arguable.
The problem with this provision is that in some instances a
subcontractor’s work is of such an independent and severable
nature that it is possible for a lien to be exercised over it 3 ,
particularly where there is reservation of ownership clauses. In
such cases, the subcontractor should not relinquish control and
should exercise a lien over its works 4 or notify its reservation
of ownership. A contractor or employer is not entitled to take
the law into its own hands and dispossess a subcontractor by
devious means or by force 5 of its property over which it has
Significant amongst these being clauses 38.5.5 and 38.5.7
This contract lacks any alternative dispute resolution provisions.
3
See inter alia Melcorp SA (Pty) Ltd v Joint Municipal Pension Fund (Transvaal) 1980 2 SA 214 (W) installed lifts remained the property of the subcontractor; Pellow and Another v Club
Refrigeration CC (469/03) [2004] ZASCA 91; [2006] 3 All SA 420 (SCA) (29 September 2004 installed refrigeration equipment that could be detached and removed. Note that these
subcontractors had provisions on the passing of ownership which weighed heavily upon the ratio decidendi.
4
Even if the subcontractor has signed a waiver of lien as part of the contract documents. An attorney with knowledge and experience of liens should provide advice in the matter and it
would be advisable to obtain advice when the termination is looming rather than to wait until after the termination.
5
See a few cases such as Wightman v Headfour (Pty) Ltd (66/2007) [2008] ZASCA 6 (10 March 2008); Top Assist 24 (Pty) Limited T/A Form Work Construction v Cremer and Another
(5335/2015) [2015] ZAWCHC 102 (28 July 2015); Taddese and Others v Peer NO and Others (5250/2016) [2016] ZAKZDHC 26 (4 August 2016)
1
2
www.hvacronline.co.za
RACA Journal I January 2020
75