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[2016] ZASCA 107
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City of Cape Town v Khaya Projects (Pty) Ltd and Others (158/2015) [2016] ZASCA 107; 2016 (5) SA 579 (SCA); [2016] 4 All SA 1 (SCA) (26 July 2016)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 158/2015
In
the matter between:
CITY
OF CAPE TOWN
APPELLANT
and
KHAYA
PROJECTS (PTY) LT
D
FIRST
RESPONDENT
PEER
AFRICA (PTY)
LTD
SECOND RESPONDENT
THE
MINISTER FOR HUMAN
SETTLEMENTS, WESTERN
CAPE
THIRD RESPONDENT
JONATHAN
MITCHELL
FOURTH RESPONDENT
WITSAND
“IEEECO” HOUSING
BENEFICIARY SUPPORT
ORGANISATION
FIFTH
RESPONDENT
WITSAND
PHASE
ONE
COMMITTEE
SIXTH
RESPONDENT
Neutral
Citation:
City
of Cape Town v Khaya (Pty) Ltd
(158/15)
[2016] ZASCA 107
(26 July 2016)
Coram:
Maya
DP, Majiedt, Seriti, Willis JJA and Victor AJA
Heard:
10
May 2016
Delivered:
26
July 2016
Summary:
Constitution
- right to adequate housing – private construction company
not
an organ of state
and
incurs no constitutional obligations independent of any statutory or
contractual obligations when it contracts to build low
cost housing
funded by the State - houses allegedly defectively built –
arbitration pending between developer and construction
company –
City of Cape Town not a party to the arbitration and has no locus
standi to have the arbitration declared lapsed
– principle of
subsidiarity applies where
parties
seek to enforce socio economic rights – should first rely on
existing statutes or challenge those instruments as unreasonable.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town (Mantame J sitting as
court of first instance), reported
sub
nom
City
of Cape Town v Khaya (Pty) Ltd & others
2015 (1) SA 421
(WCC):
1
Save as set out below, the appeal is dismissed with costs, including
the costs of two counsel.
2
The order of the court a quo that the appellant is to pay the costs
of the amicus curiae is set aside.
JUDGMENT
Victor
AJA (Maya DP, Majiedt, Seriti, Willis JJA concurring)
[1]
Witsand is a triangular piece of land situated in Atlantis, north of
Cape Town, and is strategically placed in relation to road
networks
and places of employment. Witsand was previously an informal
settlement. In consultation with the Witsand community, the
appellant, the City of Cape Town (the City) developed Witsand into a
formal township for residents in the lower income group. It
was
intended to be an integral part of the Atlantis urban complex. The
City also hoped for the housing development to be a show
case model
demonstrating the use of energy and environmentally cost effective
methods. The building project was also intended to
allow for job
creation and transfer of technical skills to the people of the area.
[2]
The second respondent, Peer Africa (Pty) Ltd (Peer Africa), was
appointed by the City as a developer to oversee the building
project
at Witsand. The first respondent, Khaya (Pty) Ltd (Khaya), was
contracted by Peer Africa to build the houses in Witsand.
[3]
The essence of the City’s case is that
whilst it
bears
a positive constitutional obligation as an organ of state to provide
adequate
housing,
because of the widespread problem of contractors building defective
low cost housing, an order from a court will provide
clarity to
housing developers that when building for the State, they are also
bound by constitutional obligations. The City
wants
all construction companies to incur a constitutional obligation not
to build defective houses.
On
that basis it sought a declarator in the Western Cape Division of the
High Court (Cape Town) that Khaya failed to comply with
its
constitutional obligation to construct adequate housing in terms of
section 26 of the Constitution, alternatively, a declarator
that
Khaya, in concluding the contract to provide and construct housing as
part of the Witsand Project, undertook constitutional
obligations as
set out in s 26(1) of the Constitution. The South African Federation
of Civil Engineering Contractors was admitted
as an amicus curiae to
the proceedings. The court a quo dismissed the application with costs
but granted leave to appeal to this
court.
[4]
The
City developed its argument in respect of the constitutional relief
by asking three questions: a) whether Khaya bears constitutional
obligations with regard to the Witsand development, b) if so, what is
the content of those obligations and c) did Khaya breach
those
obligations.
This
appeal further raised three procedural
issues
relating to: (a) the practical effect of the order sought; b) the
City’s standing to have an arbitration award declared
lapsed;
and (c) the costs of the amicus in the court a quo.
The
practical effect of the order sought
[5]
This court raised the issue whether the appeal would have any
practical effect and, if not, whether, in terms of
s 16(2)
(a)
(i)
of the
Superior Courts Act 10 of 2013
, on that basis alone the appeal
should be dismissed as the declarator on the constitutional issue
would have no practical effect
as the building work is complete and
the contractual claims for alleged defective workmanship have all
prescribed. In response,
the City relied on the principle that the
Constitution significantly expands the standing of litigants and the
remedial powers
of courts in matters involving the Bill of Rights,
and s 38 of the Constitution allows a court to grant ‘appropriate
relief,
including a declaration of rights’ when a
constitutional right is infringed or threatened. In addition, the
City relied on
s 172(1)
(b)
of the Constitution which provides that when deciding a
constitutional matter a court may make an order which is just and
equitable.
Such an order will cure the malaise of defective building
practices in low socio-economic housing projects, so it was argued.
[6]
The City placed reliance on
Rail
Commuters Action Group & others v Transnet Ltd t/a Metrorail &
others
[2004] ZACC 20
;
2005 (2) SA 359
(CC) (paras 106-107) in which it was
held:
‘
Unlike
under s 172(1)
(a)
[of the Constitution], the courts are not obliged to grant a
declaration of rights but may do so where they consider it to
constitute
appropriate relief . . . though of course the
constitutional setting may at times require consideration of
different
or additional matters.’
‘
It
is quite clear that before it makes a declaratory order a court must
consider all the relevant circumstances. A declaratory order
is a
flexible remedy which can assist in clarifying legal and
constitutional obligations in a manner which promotes the protection
and enforcement of our Constitution and its values. Declaratory
orders, of course, may be accompanied by other forms of relief,
such
as mandatory or prohibitory orders, but they may also stand on their
own.’
[7]
The City argued that the issue is important since the building of
defective lower income housing was a general problem in South
Africa
and that the constitutionality of Khaya’s actions remains a
live and ongoing dispute between the parties. Further,
Khaya
instituted arbitration proceedings against Peer Africa over the
non-payment of money by Peer Africa which remain a live issue
as the
City also sought an order that it had lapsed, despite not being a
party thereto.
[8]
An additional factor affecting the determination of the s 16(2)
(a)
(i)
issue was the submission by the amicus
that
a building contractor such as Khaya is not an organ of state and that
no socio-economic constitutional duty is imposed on it.
The amicus
also asserted that in any event, there were sufficient statutes and
building regulations in place to deal with any alleged
defective
building work. Both the amicus and Khaya contended that in the light
of
Mazibuko
& others v City of Johannesburg & others
[2009] ZACC 28
,
2010 (4)
SA 1
(CC),
the
City first had to exhaust its contractual and statutory rights and
remedies. The amicus also asserted that where a tender does
not
expressly include a constitutional obligation it would have an unfair
effect to impose one after the event. Both Khaya and
the amicus
argued that it is the State’s duty to provide housing and this
particular constitutional duty cannot be outsourced.
In addition, a
contracting party might have tendered for a different amount had it
known the contract attracted a constitutional
obligation.
[9]
There is merit in these submissions.
The
importance and novelty of the issues raised regarding the effect of
legal and constitutional obligations of private parties
contracting
to take on construction work within the context of a State project to
realise socio economic rights, as in this case,
justified that the
matter to be dealt with in the interests of justice and not dismissed
on the practical effect issue.
Contractual
Background
[10]
On 3 December 2001 the City concluded a development agreement with
Peer Africa (the development agreement), for the management
of the
erection of housing units at Witsand. The purpose of this
agreement was clearly that Peer Africa would bear the sole
risk and
responsibility for the project as the development agreement
specifically provided:
‘
the
Municipality [ie the City] does not accept any responsibility for the
execution of the project or for the rectification of defects
which
come to light as a result of the inspection or for any other reason.’
[11]
Peer Africa undertook to make sure that the buildings would comply
with all legal requirements and regulations. This involved,
inter
alia, ensuring compliance with the government’s national
housing code and requirements of the Western Cape Provincial
Housing
Development Board and the City.
[12]
Khaya commenced the building work and Peer Africa supervised the work
and issued payment certificates. The relevant amounts
were duly
paid by the City to Peer Africa, who in turn paid Khaya. Peer Africa
eventually issued the final completion certificates
signifying
acceptance of the houses. Very shortly after the first house was
handed over, however, severe defects are alleged to
have become
apparent and one of the houses apparently collapsed completely. Khaya
disputed this allegation and submits that it
was a wall that
collapsed and this was caused by the home owner not following
instructions about protecting the foundation from
erosion. The City
alleges that the roofs were defectively installed. In the founding
affidavit the deponent relies upon the report
of Mr Swart, Khaya’s
structural engineer for its assertion that the roofs were defective.
The City fails to quote Mr Swart’s
factual finding in full. Mr
Swart while conceding some shoddy workmanship states that there is
nothing wrong with the structural
integrity of the steel roof design.
He stated:
‘
there
is nothing wrong with the structural integrity of the steel roof
designs. . . . some shoddy workmanship spoiled the finished
product
but it can be corrected with a bit of effort.
’
[13]
Khaya contended that the City only dealt with a selected few units
and all of them are not defective. The City claimed that
several
fires broke out as a result of compromised fire safety precautions
and poor workmanship. Khaya disputed this. According
to it, there was
one fire resulting from a family’s negligence and only smoke
got into the adjoining unit. Khaya alleged
an untoward relationship
between the City and Peer Africa. Khaya referred to the fact that the
City gave permission to Peer Africa
to use the R1 Million it had paid
for Khaya’s claim and to use the money for its own purpose. On
30 April 2009, Khaya instituted
arbitration proceedings for an amount
of R1 069 535, 67 in respect of outstanding amounts due by Peer
Africa. By 19 June 2009,
after an inspection in loco at Witsand, the
arbitration had not progressed any further. The City undertook that
in the event that
Peer Africa is ordered by the arbitrator to pay the
R1million it would pay on behalf of Peer Africa.
[14]
The Khaya/Peer Africa contract, in clause 17.5 read with clause 1.5.2
and 1.5.4, provided that the latent defects liability
period would
expire within three months of the signing of the final completion
certificate or in accordance with the Cape Town
and Provincial norms
and standards. The final completion certificate was signed on 28
February 2010 and the last owner’s
occupation certificate was
signed on 2 November 2007. In the result any claim arising from the
building contract would have prescribed.
[15]
Peer Africa defended the claim by Khaya in the arbitration and
instituted a counter claim of R400 000 which it later withdrew.
The City alleged that remediation would cost close to R17 million.
Khaya asserted that an important reason for the delay in the
arbitration was attributable to the City refusing to produce
critically important documentation for the arbitration that confirmed
that the work executed by Khaya was correctly done. These arbitration
proceedings have not been completed. The fourth respondent,
Mr J
Mitchell, the arbitrator, confirmed that the arbitration remains
incomplete, despite running for some five years. As stated,
the
counterclaim by Peer Africa for poor workmanship against Khaya was
withdrawn and any contractual claim which the City against
Peer
Africa or the latter against Khaya had prescribed a long time ago.
The City made no attempt to sue Peer Africa for its failure
to
oversee the project in accordance with the agreement.
[16]
The preamble to the contract between the City and Peer Africa
acknowledged that it would complete planning and infrastructure
development works including the service of erven in the township of
Witsand. Peer Africa undertook to make sure that the buildings
would
comply with all legal requirements and regulations. There was no
contractual nexus between the City and Khaya. There was
also no
reference at all to any constitutional obligation on the part of
Khaya when it concluded the agreement with Peer Africa.
In the
preamble in the agreement between Peer Africa and Khaya, there is
reference to the fact that it is a community housing project,
but
other than that there is no reference to Khaya taking on any
constitutional obligations at all. The City contended that
notwithstanding
the absence of such clauses in the agreement, Khaya
nonetheless undertook a constitutional obligation in regard to the
Witsand
development and that it breached those obligations.
The
Constitutional relief
[17]
The amicus and Khaya raised the argument of constitutional
subsidiarity. This question relates to whether the City should not
have first exhausted the available and relevant contractual,
statutory and regulatory provisions before seeking constitutional
relief to deal with the alleged defective buildings. The City
attempted to counter the subsidiarity argument by asserting that
when
private parties contract to build houses as part of a government
project, certain constitutional obligations arise in addition
to
whatever obligations they contracted for apart from any obligations
imposed by statutory or industry regulations.
[18]
The subsidiarity argument rests on the dictum in
Mazibuko
at para
72 referred to above in which
the
residents of one of the poorer areas of Johannesburg and challenged
the constitutionality of the City of Johannesburg’s
decision to
supply six kilolitres of free water per month to every account-holder
in the city on the ground that the policy was
in conflict with s
27(1)(b) of the Constitution, which provides that everyone has the
right to access to sufficient water.
The
Constitutional Court held that parties in seeking to enforce socio
economic rights against the government should first rely
on existing
statutes or challenge those instruments as unreasonable. The appeal
was dismissed on that basis.
[19]
The City submitted that the subsidiarity argument is only aimed at
the
content
of the constitutional obligation and not its
existence
.
As stated above, the City does not seek an order declaring and
specifying the content of the constitutional obligation. Nor does
it
require the remediation of the defects. It simply seeks a declarator
that Khaya does hold constitutional obligations. In this
regard, the
City seeks to distinguish the relief sought from that in
Mazibuko
,
because the declarator sought does not require compliance with
non-constitutional remedies that give effect to constitutional
rights, or that the defects must be repaired. As indicated, in
Mazibuko
the
Constitutional Court held that where legislation has been enacted to
give effect to a right, a litigant should rely on that
legislation in
order to give effect to the right or alternatively challenge the
legislation as being inconsistent with the Constitution.
There are a
number of statutes and regulations that regulate proper building
practices.
[1]
A closer look at
the available remedies the City seeks to avoid using, suggests that
it seeks to by-pass the statutory and contractual
process. In other
words, the City has failed to act against Khaya and has not requested
it to enforce the contractual provisions
of the Khaya/Peer Africa
agreement in respect of the building defects. It wants to hold Khaya
accountable on a constitutional basis.
This it cannot do in the light
of the settled law. The subsidiarity argument raised by Khaya
and the amicus must succeed.
The
application of the socio-economic right of access to housing to a
private construction company
[20]
A second constitutional issue raised was the application of the Bill
of Rights to private relationships. Section 8(1) provides
for direct
constitutional scrutiny in the area of common law private
relationships such as between Khaya and Peer Africa. Section
8(2)
provides that:
‘
A
provision in the Bill of Rights binds a natural or a juristic person
if, and to the extent that, it is applicable, taking into
account the
nature of the right and the nature of any duty imposed by the right’.
As explained by Woolman,
[2]
s 8(2) eliminates
any doubt (i) about the application of the substantive provisions of
the Bill of Rights to disputes between private
parties, in general;
and (ii) about the ability to use the Bill of Rights to develop new
rules of law and new remedies that will
give adequate effect to the
specific provisions of the Bill of Rights, in particular. The City
seeks to parachute s 8 rights into
a building contract between non
state parties and thereby develop new rules of law and remedies to
overcome what they perceive
to be a problem with the delivery of poor
quality houses built by private contractors with state funds. Section
8(3) of the Constitution
provides:
‘
When
applying a provision of the Bill of Rights to a natural or juristic
person in terms of subsection (2), a court —
(a)
in order to give
effect to a right in the Bill, must apply, or if necessary develop,
the common law to the extent that
legislation
does not give effect to that right
;
and
(b)
may develop rules
of the common law to limit the right, provided that the limitation is
in accordance with section 36(1).’
(own emphasis)
As
I have said, there are a number of building laws and regulations and
standard building industry contracts that generally ensure
the
enforcement of good building standards. It follows therefore that s 8
(3) (a) needs only to be applied to the extent that legislation
does
not give effect to that right.
[21]
In juxtaposing s 26 rights and the application of s 8(2) the City
contends that in this context of socio economic obligations
a private
party attracts constitutional obligations. The City submitted in its
heads of argument that it was not obliged to restrict
itself to the
vertical rights between it and Peer Africa, and it could proceed on
the basis of a horizontal application of socio-economic
rights. As
the argument developed, counsel for the City submitted that Khaya,
for the purpose of the building low cost housing
funded by the state,
became an organ of state. However, this reveals a degree of
conceptual misunderstanding. If Khaya was
an organ of state, s
8(2) of the Constitution would not be applicable, and the Bill of
Rights would not apply horizontally to it.
Instead, the
applicable section would be s 8(1), which deals with vertical
application, and provides that the Bill of Rights
‘applies to
all law, and binds the legislature, the executive, the judiciary and
all organs of state’.
[22]
The City’s argument rested on Khaya being an organ of state. A
closer look at the proposition that Khaya could become
an organ of
state is therefore necessary.
An
organ of State as defined in s 239 of the Constitution includes ‘any
other functionary or institution exercising a power
or performing a
function in terms of the Constitution or exercising a public power or
performing a public function in terms of
any legislation. The
Constitution provides expressly that those institutions and
individuals who exercise 'public power' or engage
in a 'public
function' in terms of some underlying legislation or constitutional
provision can be characterized as organs of state
even if these
institutions and individuals need not be an 'intrinsic part' of what
we have commonly or historically considered
to be the
'government'.
[3]
To qualify as
an organ of state the entity need not be subject to the effective
control of elected legislative or executive bodies.
[23]
In this regard, the City argued that a private company in the
position of Khaya is an institution engaging in a public function
by
building State funded housing. Reliance was placed on
Allpay
Consolidated Investment Holdings (Pty) Ltd & others v Chief
Executive Officer, South African Social Security Agency &
others
[2014] ZACC 12
;
2014 (4) SA 179
(CC)
(Allpay2).
There,
the award of the tender by the South African Social Security Agency
(SASSA) to Cash Paymaster Services (Pty) Ltd (Cash
Paymaster) for the
administration and payment of social grants to beneficiaries on its
behalf throughout the country was declared
constitutionally invalid.
In paras 54 and 55 Froneman J held as follows:
‘
54.
SASSA must administer social assistance in terms of the Assistance
Act. It is legislation that
seeks to give effect to the right of
access to social security in terms of ss 27(1)
(c)
and 27(2) of the Constitution. SASSA may enter into an agreement with
any person 'to ensure effective payments to beneficiaries'
in terms
of s 4(2)
(a)
of the Agency Act. In terms of the agreement between SASSA and Cash
Paymaster the latter administers the payment of social grants
on
SASSA's behalf. In doing so, Cash Paymaster exercises a public power
and performs a public function in terms of the Agency Act,
enacted to
give effect to the right to social security.’
‘
55.
But it does more than that. It plays a unique and central role as the
gatekeeper of the right
to social security and effectively controls
beneficiaries' access to social assistance. For all practical
purposes it is not only
the face, but also the operational arm, of
the “administration in the national . . . sphere of
government”, insofar
as the payment of social grants is
concerned.’
[24]
Counsel on behalf of the City placed great reliance on the above
dicta in
Allpay
2
,
in particular the following phrase: ‘[f]or all practical
purposes it is not only the face, but also the operational arm’
of the government. He argued that Khaya was the operational arm of
the City in respect of the houses built in Witsand, and accordingly
analogous to Cash Paymaster. But this is incorrect as the words
‘operational arm’ must be read in context. It seems
to me
that the import of the words ‘operational arm’ read in
context meant that Cash Paymaster was the operational
arm of
the
entire
administration insofar as the payment of social grants was
concerned. It was described as the ‘gatekeeper’ of
the right to social security, which ‘effectively controls’
access to social assistance. It was, in other words, not
the
operational arm in relation to a single aspect or minor portion of
the duties of a government department, but the entire operation
for
the country. Khaya cannot be described as the operational arm of the
City for the entire administration of housing projects
or indeed for
the entire nation as was the case with Cash Paymaster.
[25]
Even assuming in favour of the City that an entity can be described
as the ‘operational arm’ of a municipality
when it is
only involved in a single project among many (which, it seems to me,
is not what was contemplated in the dictum quoted
above and would be
an extension of
Allpay
2
),
then on these facts the only entity that could ever be described in
this manner would be Peer Africa and not Khaya.
[26]
In
Allpay 2
, SASSA was obligated to provide social assistance
in terms of s 27 of the Constitution. It could enter into
agreements ‘to
ensure effective payments to beneficiaries’.
These agreements were regulated by legislation, and in para 48 of the
judgment
the following was noted:
‘
The
agreement must include provisions to ensure the effective and
economical use of funds for payment to beneficiaries; the promotion
and protection of the human dignity of beneficiaries; the protection
of confidential information held by the agency; honest, impartial,
fair and equitable service delivery; mechanisms to regulate community
participation and consultation; and financial penalties for
non-compliance.’
[27]
Therefore, by entering into the contract with SASSA, Cash Paymaster
was entering into a contract which was regulated by legislation,
and
in which it effectively agreed to assume responsibility for the
delivery of social grants payable by SASSA to beneficiaries.
In
other words, it agreed to ensure that SASSA’s positive
constitutional obligations in respect of the payment of social
grants
were fulfilled.
[28]
Froneman J in
Allpay 2
stated (para 52):
‘
That
SASSA is an organ of state is clear. But for the purposes of the
impugned contract, so too is Cash Paymaster. In determining
whether
an entity is an organ of state, the presence or absence of
governmental control over that entity is a factor, but in our
constitutional era is not determinative. In Cash Paymaster's case the
'control test' is not helpful; although it may be independent
from
SASSA's control, the function that it performs — the
countrywide administration of the payment of social grants —
is
fundamentally public in nature. Accordingly there is no basis for
finding on the facts in this case that Khaya, a construction
company
which is neither controlled by the City nor performs a nationwide
public function is an entity analogous to Cash Paymaster.
[29]
In the present case, Khaya agreed with Peer Africa (and not the City
of Cape Town) to construct houses. However, Khaya did
not enter into
any contract with the City, and it also did not undertake that the
City’s positive constitutional obligations
would be effectively
achieved in regard to the housing project. It merely agreed to
build houses according to the specifications
provided by Peer Africa.
It was Peer Africa that the City contracted with to take
responsibility for the housing project, and it
was Peer Africa that
was supposed to oversee the project. Khaya was simply a subcontractor
hired by Peer Africa.
[30]
A further issue argued by the City was that the contract between
Khaya and Peer Africa does refer to the context of the housing
project. In the preamble to the contract there is reference to the
constitutional context of the housing project.
[4]
However, care must be taken to distinguish provisions in a contract
imposing obligations and mere recitals which are not intended
to
create any obligations. The position is explained by Cameron JA
in
Absa
Bank Ltd v Swanepoel NO
2004
(6) SA 178
(SCA) para 6 as follows:
‘
At
its simplest, a contract is an enforceable promise to do or not do
something. But when parties record an agreement in writing,
they
often add provisions that do not embody such promises. A contract may
have a preamble. It may contain 'recordals' and 'recitals'.
It may
document prior events, or record the parties' future intentions. It
may contain clarificatory or explanatory statements.
The parties may
place on record matters that bear on the interpretation of what they
have undertaken. It is therefore wrong to
approach a written contract
as though every provision is intended to create contractual
obligations.’
Whether
a provision imposes contractual obligations and when it is merely a
preamble or recital depends on a proper interpretation
of the
provision itself (Brand JA in
Consol
Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd
2005 (6) SA 1
(SCA) para 13).
[31]
The question, then, is whether the provisions referred to by the
City, read in context, created obligations or were merely
intended to
introduce the contract. Counsel for the City could only refer to
provisions in the preamble. I think it is quite clear
that these were
not intended to create constitutional obligations. The scope of
responsibility undertaken by Khaya was materially
different to that
undertaken by Cash Paymaster in
AllPay
2
.
[32]
A further important contrasting feature is that the tender by SASSA
also made clear that the tender was subject to the Constitution.
The
procurement contract was very clear in its terms that the contract
had important constitutional consequences. The Court also
emphasised
the purpose of the tender. It was undisputed that SASSA was in terms
of the applicable legislative framework responsible
for the
administration, management and payment of social grants in line with
the Constitution.
[33]
The City’s conduct in this matter also requires analysis. In
the light of its constitutional imperative it cannot remain
supine
during the course of the contract. It cannot outsource all its
obligations to Peer Africa. Of importance in this regard
is the
dictum at para 58 of
AllPay 2.
‘
SASSA
does not, by the conclusion of the contract, divest itself of its
constitutional responsibility and public accountability
for rendering
the public services. It remains accountable to the people of South
Africa for the performance of those functions
by Cash Paymaster. In
its own case, accountability is ensured by financial compliance with
the Public Finance Management Act and
general ministerial oversight.’
This
principle was also dealt with in
AAA Investments (Pty) Ltd v Micro
Finance Regulatory Council & another
[2006] ZACC 9
;
2007 (1)
SA 343
(CC) where Yacoob J, writing for the majority stated (para
40):
'Our
Constitution ensures . . . that government cannot be released from
its human rights and rule of law obligations simply because
it
employs the strategy of delegating its functions to another entity.’
It
follows therefore that the City itself should have played a far more
active role during the project rather than import a constitutional
obligation on Khaya
to
remedy the issues of prescription and its failure to call Peer Africa
to book.
[34]
The amicus argued that s 217 of the Constitution provides for
procurement and if the declarator sought is granted then this
would
violate the right to freedom of trade and undermine the right to
contract with the state in a transparent and fair manner.
The
amicus’ concern in this regard was the far reaching impact such
a declaratory order would have on the rights of building
contractors
if they were to take on constitutional obligations without having
contracted or tendered for such obligation. Its concern
was that the
effect of the order would amount to re-ordering private relations
beyond the contracts between the City, Peer Africa
and Khaya. The
further concern was that this should occur not only after the
conclusion of a contract between the State and a service
provider but
also during or after the execution of the contract itself.
In
particular the construction industry should have an opportunity to
address the imposition of a constitutional obligation before
its
members conclude building contracts. The City on the other hand
argued that the defective work carried out by Khaya was contrary
to
the provisions of s 217 of the Constitution and therefore not to
grant a constitutional declarator meant that defective workmanship
was acceptable.
[35]
The City’s submission does not follow logically from an
interpretation of s 217. In my view, it would be wrong to impose
a
constitutional obligation ex post facto the procurement event. This
would be inconsistent with the principles of fairness and
would not
be equitable and transparent. In the light of this finding that there
is no constitutional obligation on Khaya there
cannot be a
declaration as sought. The appeal on the constitutional issue must
fail.
Has
the arbitration lapsed?
[36]
The City also seeks an order that the arbitration between Khaya and
Peer Africa has lapsed in terms of s 23
(a)
of the Arbitration Act 42 of 1965 (the
Arbitration Act), which
provides a time limit in which an arbitrator may make an award.
[37]
The relevant portion of
section 23
of the
Arbitration Act reads
:
‘
The
arbitration tribunal, shall, unless the arbitration agreement
otherwise provides, make its award–
(a)
. . . within four
months after the date on which the arbitrator entered on the
reference . . .
or
. . . on or before any later date to which the parties by any writing
signed by them may from time to time extend the time for
making the
award . . . .’
[38]
Mr Mitchell, the arbitrator and fourth respondent, did not allow the
City to enter the arbitration proceedings on the basis
that it did
not have standing. The City failed to apply for a review of that
decision, and so that issue is not directly before
us. However, a
similar problem arises with the City’s new attack on the
arbitration, on the basis that it has lapsed in terms
of
s 23
(a)
of the
Arbitration Act. The
City submitted that even though it is not
a party to the proceedings it had standing on two grounds: First, it
is Peer Africa’s
principal and therefore is entitled to be a
party to the arbitration. Secondly,
s 23
(a)
of the
Arbitration Act is
designed to protect third parties to the
arbitration.
[39]
At the first arbitration meeting, the parties expressly agreed to
extend the date on which the award was to be made and also
included a
clause to the effect that the conduct of the arbitration would be
within the discretion of the arbitrator. There is
insufficient
evidence in the papers detailing the reasons for the delay. The
reasons suggested for the delay are in dispute and
cannot be resolved
in application proceedings. In any event, having regard to the fact
that the parties expressly agreed to extend
the periods provided for
in
s 23
(a)
of
the
Arbitration Act, it
is impossible for this court to make a
finding that the arbitration was unduly delayed and that an order
declaring that it has
lapsed is justified.
[40]
The City seeks to attain its standing to interfere in the arbitration
process based on its claim that Peer Africa is its agent
and
therefore as principal it has locus standi to seek a declarator. As
explained above, the development contract does not create
an agency
relationship, and so this is clearly incorrect. It follows
therefore that the City’s claim is a contractual
claim against
Peer Africa based on the agreement between it and Peer Africa. The
arbitration, on the other hand, concerns a contractual
claim by Peer
Africa against Khaya based on a different contract. If the houses are
indeed defective, then the City would have
had a claim against Peer
Africa.
[41]
Counsel for the City argued that the arbitration agreement did not
provide for the extension of the arbitration. However,
clause
31.2 of the minutes of preliminary meeting in the arbitration, signed
by representatives of both parties, reads as follows:
‘
These
signed minutes constitute consent by the parties, in writing, that
the Arbitrator may extend the time limits stipulated in
terms of the
Arbitration Act.’
>Nevertheless,
counsel for the City argued that this clause was ineffective because:
Where
a timeline for an award is extended in terms of
s 23
(a)
,
it must be to a
specific
date, and this was not the case here;
and
A
provision allowing for a timeline to be extended by the arbitrator
where reasonably necessary must be part of the ‘arbitration
agreement’, and these were merely minutes of a preliminary
meeting in the arbitration.
[42]
No authority was provided for either of these propositions. However,
even assuming that the
Arbitration Act does
make the conceptual
distinction described in proposition (a) above, ie between the
arbitration agreement altering the default timeline
set out in the
Act, and ad hoc extensions of the time for making an award once the
arbitration has started, the City’s argument
still fails on the
facts. It must be accepted that the arbitration agreement was amended
and the default timeline was altered by
the parties prior to the
commencement of the arbitration. In other words, proposition (a) is
irrelevant, and the requirements of
proposition (b) are satisfied.
[43]
Therefore, it seems to me that there is no reason why the parties
could not by written agreement signed by their representatives,
amend
the provisions of the arbitration agreement relating to the timelines
of the arbitration. In addition, both Khaya and the
arbitrator have
stated that the arbitration has not lapsed. In light of the
above facts, and in the absence of any party
with standing
challenging the arbitration’s continuation, I think that this
assertion should be accepted.
Appeal
against the cost order granted by the High Court to the amicus
[44]
The court a quo ordered that the City must pay the costs of the
amicus curiae. The City appeals this order. In
Hoffman v South
African Airways
[2000] ZACC 17
;
2001 (1) SA 1
para 63 the court
held:
‘
An
amicus curiae assists the Court by furnishing information or argument
regarding questions of law or fact. An amicus is not a
party to
litigation, but believes that the Court's decision may affect its
interest. The amicus differs from an intervening party,
who has a
direct interest in the outcome of the litigation and is therefore
permitted to participate as a party to the matter.
An amicus joins
proceedings, as its name suggests, as a friend of the Court. It is
unlike a party to litigation who is forced into
the litigation and
thus compelled to incur costs. It joins in the proceedings to assist
the Court because of its expertise on or
interest in the matter
before the Court. It chooses the side it wishes to join unless
requested by the Court to urge a particular
position. An amicus,
regardless of the side it joins, is neither a loser nor a winner and
is generally not entitled to be awarded
costs.’
These
remarks are apposite here. The order of the court below that the
appellant is to pay the amicus’s costs must be set
aside.
[45]
In the result the following order is made:
1
Save as set out below, the appeal is dismissed with costs, including
the costs of two counsel.
2
The order of the court a quo that the appellant is to pay the costs
of the amicus curiae is set aside.
______________________
M
Victor
Acting
Judge of Appeal
Appearances:
For
the appellant:
A Katz SC (and M Bishop)
Instructed
by:
Hayes
Incorporated, Cape Town
Webbers,
Bloemfontein
For
the first respondent:
J W Olivier
SC (and M Verster)
Instructed
by:
Smit Kruger Inc.,
Durbanville
Symington
& De Kok, Bloemfontein
For
the amicus curiae:
M Schreuder
Instructed
by:
MHI
Attorneys, Bellville
McIntyre
Van der Post, Bloemfontein
[1]
For example, the National Building Regulations
and Building Standards Act 103 of 1977. See also the JBCC and
Fidic standard
form building contracts.
[2]
See Stuart Woolman’s chapter on
‘Application’ in Stuart Woolman and Michael Bishop (Eds)
Constitutional Law of South Africa
2 ed (Revision Service 6, 2014) at 73.
[3]
See Woolman ‘Application in Woolman and Bishop (Eds)
Constitutional Law of South Africa (above)
at 105
[4]
The preamble to the contract reads:
“
Whereas
the Blaauwberg Municipality/City of Cape Town is the project
developer, has appointed PEER Africa and Associates as the
Implementing Agent for the project PEER Africa (Pty) Ltd.,
in
conjunction with the community housing committee
shall
be referred to as the Primary Support Organisation.” (my
emphasis)
“
Whereas
the
Witsand Community
in conjunction with the Blaauwberg Municipality/City of Cape Town
has called for proposals via public tender from persons interested
in constructing houses in the township and Khaya Projects (Pty) Ltd
was successfully short listed.”(my emphasis)