Doubts over force majeure claims due to strikes leave contractors vulnerable
Appeal court creates grey area by casting doubt on aspects of high court ruling in claim against Sanral
In a country such as SA, where industries are highly unionised and aggrieved, unskilled and semiskilled labourers constitute a large proportion of the workforce, and strikes frequently threaten the successful completion of a construction project on time and within budget.
The Construction Industry Development Board has reported that strikes in the industry are responsible for 8% of the total loss of productivity across all economic sectors. According to the labour department’s 2014 annual industrial action report the construction industry contributed 128,516 collective working hours and 8% of working days lost to strikes.
Standard-form contracts such as those of the International Federation of Consulting Engineers (Fidic) and Joint Building Contracts Committee include strikes in their definitions of force majeure, and the respective provisions entitle a contractor to additional time to complete the work. Clause 19.4 of Fidic furthermore entitles a contractor to payment for costs incurred due to a force majeure event. These are subject to the force majeure event (such as a strike) being beyond the contractor’s control, not being reasonably provided for by the contractor before signing the contract, not having been reasonably avoided or overcome and not substantially attributable to the employer.
This issue was considered by the high court in the matter of Rumdel Cape/EXR Holdings/Mazcon Joint Venture vs SA National Roads Agency. The matter involved the improvements of a national road at the intersection of the N2 and M19 under a Fidic red contract. During the subsistence of the contract members of the local community embarked on strikes, protests and violent acts after the joint venture decided to employ people from outside the area.
The joint venture alleged that this resulted in the stoppage of certain work, damage to equipment, assaults on a number of the joint venture’s employees and even the killing of a security guard.
In addition to submitting a claim for security and security-related measures amounting to R966,000, the joint venture sought an order declaring that the strikes and violent actions of the local community constituted a force majeure event entitling it to the associated time and cost consequences (including the payment of the R966,000).
The high court held that the joint venture alone carried the obligation of ensuring the safety of the project site and that a prudent contractor would have foreseen the demand for jobs by the local community. The court did not believe the actions (including the consequences) of the local community were beyond the control of the joint venture and, accordingly, held that the actions of the local community did not constitute force majeure. The Supreme Court of Appeal, without elaborating or commenting on the actual findings, was of the view that certain aspects of the high court’s reasoning were “somewhat illogical”.
Considering the two courts’ judgments, one can reasonably conclude that an argument of whether one can successfully claim additional time and costs on the basis of force majeure provisions in the event of strikes is not clear in SA law.
Given the vagaries in the construction industry and SA’s susceptibility to strikes, is it possible for parties to a construction contract, acting reasonably and prudently, to to foresee the possibility of strikes, to identify and incorporate systems or measures to eliminate the time and cost effects of strikes, and to exploit the measures available to mitigate the adverse effects of strikes? And if so, does it matter that history has not shown a trend in the duration and severity of strikes, and proactive measures such as insurance can only be relied upon once the adverse effects of strikes are known?
Our experience has led us to conclude that parties who try to allocate all the risk of force majeure events to the other party may pose an appreciable threat to the successful completion of a project because their efforts are directed at shifting the burden rather than avoiding them.
Parties to a construction contract should ensure that the risks associated with strikes are properly identified and borne by the party that is best placed to prevent such risks from materialising or mitigate their effect. This exercise requires both parties to first understand that their own negotiating stance may attract a premium, which may have to be borne by either of them.
Parties should not play the blame game; they should accept that strikes are often unpredictable and agree that all risks associated with strikes should be shared equally when they materialise.
• Lediga is an SA lawyer who is reading for a master’s degree in the UK.