Navigating and arbitrating claims in South Africa’s construction sector

Disputes in construction and engineering projects frequently stem from claims related to delays, restricted site access, inadequate information, non-compliance with contractual obligations, unforeseen conditions, defective workmanship, and broader conflicts. These issues, while commonly addressed in standard form contracts, often give rise to uncertainty and misinterpretation, leading to protracted and costly disputes. 

The three main considerations that are most relevant to contractors looking to operate within the construction and engineering sectors in South Africa are extensions of time (EOT) claims, delay and concurrency, liquidated damages, and money claims; prescription and limitation periods; and dispute resolution mechanisms.

EOT, delay, concurrency, liquidated damages and money claims

Extensions of time (EOT) claims are encompassed and detailed within standard form contracts, entitling contractors to an extension of time to an agreed completion date in instances where project delays are not attributable to the contractor, or where the employer has assumed the associated risk.  

The exact procedure for submitting an EOT claim is prescribed within the contract. This ensures that the claim is submitted to the appropriate person, the contractor provides early or advance notice and that, within the given notice period, the contractor supplies relevant information or documentation to substantiate the claim.

The methodology for assessing an EOT involves the contract administrator exercising their judgement, which under South African law must be fair and rational. If these procedures are not followed, or if claims are not submitted within the contractual timeframe, the contractor may be precluded from submitting a claim.  

In standard form contracts, like the International Federation of Consulting Engineers (FIDIC) – which is in common use in South Africa – EOT notices are to be delivered to the engineer as soon as possible, but no later than 28 days after the contractor becomes aware of the event.

However, in 2014, the English case of Obrascon v Gibraltar, the court considered the wording of clause 8.4 entitlements to extension of time, finding that the wording “is or will be delayed” established the contractor’s entitlement to provide a claims notice on two different bases: prospectively, when the trigger event is apparent; and retrospectively, considering when the delay actually started to be incurred. This interpretation ensures that the contractor is entitled to submit its claim within the contractual period following the occurrence of the triggering event, allowing contractors the opportunity to wait until the impact of the event is reflected in the programme before giving notice. 

While South Africa does not currently have case law directly supporting this position, in practice we have seen tribunals follow this approach, rather than the more recent and restrictive interpretation offered by the Dubai International Financial Centre Court in 2023 in Panther Real Estate Development v Modern Executive Systems Contracting.

It can also be difficult to ascertain exactly when a contractor becomes aware of an event. Is it, for example, at the time the event occurs, or is it dependent on the impact of the event on the project programme? This ambiguity allows parties to argue either position, depending on the circumstances of the particular case, and is generally considered to be friendlier to contractors than it is to employers.  

Concurrency occurs in instances where a period of critical delay to a project is caused by two or more factors of equal causative potency, one of which is attributed to the contractor and the other to the employer. True factual concurrency is rare, but, where it exists, the contractor will generally be entitled to an EOT, but not its additional costs.

The 2001 case of Thoroughbred Breeders’ Association of South Africa v Price Waterhouse has been interpreted to be more restrictive to contractors. Here, South Africa’s Supreme Court of Appeal (SCA) emphasised that the burden on the Thoroughbred Breeders’ Association to prove the causative link between Price Waterhouse’s conduct and the alleged loss was not directly in point.

There remains scope for the courts to develop this area of law. However, contracting parties in South Africa are also increasingly regulating this issue themselves in their contracts. It is now common to see contractors prevented from claiming even an EOT in cases of concurrency. 

Liquidated damages are agreed sums payable by the contractor to the employer in the event of critical delay caused by the contractor, without the need for the employer to prove actual loss. These provisions are strictly enforced, provided the employer has not contributed to the delay and the contractor has not been granted an extension of time. 

Under South African law, liquidated damages provisions can, however, be struck down or diminished to an extent considered equitable in the circumstances under section 3 of the Conventional Penalties Act, where such damages are disproportionate to the actual loss incurred by the employer.

In our experience, common issues pertaining to failed claims relate to a contractor’s non-compliance with the notice provisions, contractors not proving relevant information or documents to support their claim, or claims being time-barred because a contractor has not issued notice in requisite timeframes.  

To prevent this, it is advisable that contractors have meticulous document management processes and a good understanding of the contract and that they notify claims timeously, taking into account that the precise requirements for notice can vary between contracts.  

Prescription and limitation 

The law regulating prescription within South Africa is governed by the Prescription Act. Section 11 of the act provides for periods of prescription of debts, with periods ranging from between three to thirty years, depending on the nature of the debt. The most common period for debts arising out of construction contracts is three years. Section 12 of the act further adds that the prescription period begins running as soon as the debt is due.

In 2016, in Standard Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and Another (17-page / 97.3KB PDF), the SCA reaffirmed its position that a debt is due when the creditor acquires a complete cause of action for recovering  the debts – that is, when everything has occurred which would entitle the creditor to institute action to pursue a claim. 

When applying the principle to contractual claims within EPC projects, most standard forms provide strict notification periods in the event of a contractor’s entitlement, which must be adhered to when pursuing any claim for additional payment. Additionally, it is not uncommon to see contracts prescribe specific patent and latent defect notice periods which expressly circumscribe the periods within which claims may be brought by employers against contractors in respect of defective performance.

South Africa’s friendly position on ADR 

For decades South Africa has maintained a sophisticated system of alternative dispute resolution (ADR) mechanisms, with South African courts maintaining a pro-enforcement view of both adjudication and arbitration. In 2023, in Krohne (Pty) Ltd and Strategic Fuel Fund Association (13-page / 175KB), the SCA ruled that courts will not have the jurisdiction over disputes that are within the ambit of a valid arbitration agreement, unless the agreement is unenforceable or invalid. Where parties reach a settlement in accordance with an arbitration agreement and the arbitrator endorses the settlement as an award, it is enforceable by the court.  

Beyond arbitration proceedings, mediation through High Court Rule 41a is encouraged to ensure that parties involved in a dispute consider mediation as a statutory pre-requisite before instituting formal proceedings within the court system. This comes as disputes between parties may only be heard by a court three-to-four years after the dispute has been formally initiated, making it significantly harder for creditors to try to recover costs due where they are forced to pursue claims in litigation.

The China-Africa Joint Arbitration Centre (CAJAC) has also played a pivotal role in encouraging the arbitration of contractual disputes in the region. The centre was established to administer the resolution of international disputes between the ‘BRICS’ nations, which now counts nine developing countries in its economic alliance. With particular relevance in the South African context, it aims to streamline disputes, between those Chinese and African entities, whose principal place of business or residence is located in China or an African state.

The CAJAC’s main arbitral seats are in Johannesburg, Shanghai; Beijing, Shezhen, Nairobi and in 17 countries in Western and Central Africa, which observe the legal and arbitration regulatory framework established by the Organisation for the Harmonisation of Business Law in Africa (OHADA).

Efficient arbitration proceedings

Arbitrations are designed to be efficient, cost-effective means of resolving disputes between parties. However, at times the opposite may be seen in practice as parties can exploit the flexibility that comes with arbitration through consensus. The rules of arbitration institutions are designed and established to allow an arbitrator discretion to facilitate proceedings in the most efficient manner, but often arbitrations in the region can become more prolonged, due to party availability and the perceived obligation assumed by many arbitrators to adhere to the “audi alterem partem” rule prevalent in court litigation to ensure a party is fully heard. In 2023, in Emerald Capital v Ace Auto Salvage (15-page / 263KB) the High Court reaffirmed this position, stating that the rule is a “fundamental feature” of South Africa’s justice system.

South African arbitral proceedings typically follow the IBA Rules on the Taking of Evidence in International Arbitration (35-pages / 134kb) which serve as a guideline on party-appointed experts, indicating what an expert report shall contain, and reinforcing duties of impartiality and independence.

Optimising technology

While the use of AI in arbitrations can be used as a means of ensuring efficiency, the CAJAC rules do not include guidelines on regulating its usage. Other arbitration bodies, including the Chartered Institute of Arbitrators and the Arbitration Foundation of Southern Africa, issued guidelines on the use of AI in arbitration proceedings earlier this year – a move which is expected to further encourage arbitrators to consult with parties on the extent and use of AI within proceedings.

The use of virtual hearings since the Covid-19 pandemic has allowed for a broader variety of international experts and has made single arbitration proceedings accessible to multiple jurisdictions. This, in turn, has made it more cost-effective, efficient and environmentally sustainable to facilitate proceedings involving parties in different jurisdictions.