About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2014
>>
[2014] ZASCA 105
|
|
Holm Jordaan & Partners CC v City of Tshwane Metropolitan Municipality (830/2013) [2014] ZASCA 105 (3 September 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 830/2013
Not
reportable
In
the matter between:
Holm
Jordaan & Partners
CC
.........................................................................................
APPELLANT
and
City
of Tshwane Metropolitan
Municipality
................................................................
RESPONDENT
Neutral
Citation:
Holm Jordaan v City of
Tshwane Metropolitan Municipality
830/13
[2014] ZASCA 105
(3 September 2014)
Coram:
Lewis, Maya, Wallis, Willis JJA and
Dambuza AJA
Heard:
21 August 2014
Delivered:
3 September 2014
Summary:
Where an architect’s commission in respect
of the design of a building is conditional upon a decision to proceed
with the
project, and final terms are not agreed by all parties
concerned, no contract comes into existence; the decision to proceed
does
not amount to a repudiation.
ORDER
On
appeal from:
North Gauteng High Court,
Pretoria (J W Louw J sitting as court of first instance):
The
appeal is dismissed with costs including those of two counsel.
JUDGMENT
Lewis
JA (Maya, Wallis and Willis JJA and Dambuza AJA concurring)
[1]
At issue in this appeal is the question whether there was a contract
between the parties on the terms alleged by the appellant,
Holm,
Jordaan & partners CC (HJ), a firm of architects, and the City of
Tshwane (the City), the respondent, for the design
and supervision of
new municipal headquarters for the City. HJ had won a competition run
by the City’s predecessor, the City
Council of Pretoria, for
the design of new municipal headquarters. Several years later, and
after much negotiation and many changes
to the original arrangement
between the parties that I shall discuss in due course, the City
advised HJ that it was not proceeding
with the project originally
envisaged. HJ regarded this as a repudiation of an enforceable
contract and sued for damages in excess
of R4 million, being the fees
it claimed it would have earned had the project gone ahead. The North
Gauteng High Court (Louw J)
found that there was no contract on the
terms alleged by HJ and dismissed the action. Leave to appeal to this
court was granted
by the high court. I shall discuss briefly the
background to the running of the competition, the history of the
parties’
negotiations and then the contractual terms.
The
history
[2]
The personnel and departments of the City Council of Pretoria (I
shall refer to it as the Council to distinguish it from the
City, the
respondent) were, until March 1997, accommodated for the most part in
a building known as Munitoria. On 3 March 1997
the west block of
Munitoria was razed to the ground by a fire, and the south block was
severely damaged. The building could no
longer be occupied and the
personnel were moved to other accommodation rented by the Council on
a temporary basis. The south block
was rebuilt, but the remains of
the west block had to be demolished.
[3]
In November 1998 the Council decided to hold a competition for an
architectural design of a new municipal building on the site
of the
west block. The competition was referred to as Project Phoenix
(presumably because the building would arise from the ashes
of the
old building) and was open to architects practising in Pretoria. The
first prize for the competition was that the winner
would be
commissioned as the architect for the rebuilding of the municipal
headquarters, and its brief would include the design,
contract
documentation, contract administration and inspection of the works.
HJ entered the competition and in July 1999 the Council
announced
that it was the winner. HJ considered that it was entitled to
commission on the entire project. When the project was
abandoned by
the City, HJ considered that it had repudiated the contract with HJ,
on the terms it alleged. HJ accepted the repudiation
and sued the
City for damages for breach of contract.
[4]
Before dealing with the ‘conditions’ of the competition
and other documents that bear on the contractual arrangements
between
the parties, it should be noted that the requirements for a new
municipal building grew exponentially after the competition
had been
held and initial work done. The Council was absorbed by a newly
created metropolitan municipality – the City
– in
December 2000 and new policies and strategies regarding transport and
development of the City, for example, required
more space for
personnel and created new requirements for new functions.
The
competition brief
[5]
The competition brief described in broad terms the area in which the
new building was to be erected, its surrounds and the urban
design
considerations to be taken into account, and indicated that the floor
area was variable within a range of 41 000 and 51 000
square
meters. In addition it specified the facilities that were required
and a maximum cost for office construction (R125 million)
and for
parking (R35 million) – a total of R160 million. The brief
ended with a statement in relation to financing proposals:
‘Since
the City Council does not have the finance to erect the new office
building, finance for the project will have to
be sourced elsewhere.
Entrants may submit financing proposals if they so choose. However
such proposals will not be taken into
account in the evaluation of
design proposals.’
The
competition rules and terms
[6]
The Council, as the ‘promoter’, invited entries from
Pretoria architectural firms. Entrants had to register and
pay an
entry fee. The names of the assessors were listed, and it was stated
that a Competition Registrar would be appointed. Several
requirements
were set out for the way in which designs and documents should be
submitted. Clause 2.16, on which much turns, read:
‘
Each
of the stage one finalists shall receive an amount of R10 000 . . .
This award is to defray costs incurred in the submission
of a second
stage entry . . . .
Subject
to his/her compliance with the conditions contained herein,
the
finalist of the scheme placed first shall be commissioned as
architect for the project, which commission shall constitute the
first prize.
The Promoter shall enter into an agreement with the
winner, the terms of which shall be the standard terms of agreement
between
the City Council of Pretoria and architects for a service
including design, contract documentation, contract administration and
inspection of the works. The R10 000 award made to the winner as a
stage one finalist shall form part of the design concept (sketch
plan) fee.
Should the project not be proceeded with after the
adjudication of the second stage, the winner will be paid the design
concept
(sketch plan) fee.
While
it is the intention of the Promoter to proceed with the final design
and documentation and with the construction of the new
complex should
the go-ahead be obtained from the City Council, the Promoter is under
no obligation to do so.
’ (My emphasis.)
Winning
the competition
[7]
On 13 September 1999 the executive director of city planning and
development wrote to HJ confirming that it had submitted the
winning
entry ‘subject to the Competition Brief, Rules and conditions
with which you are fully conversant’. The letter
continued that
it was the Council’s intention to ‘commission your firm
as Architectural Consultants for the new building,
should it be
decided to proceed with the project
. As explained to you .
. . the Council’s decision whether or not to proceed with
the Project
is dependent on a variety of factors
, the most
important of which are acceptable financing proposals and clarity
with regard to the effect of the new uni city on accommodation
requirements in a new building.’ (My emphasis.) HJ
responded in due course stating that it eagerly awaited the decision
to proceed with Project Phoenix, and said: ‘We understand that
our formal appointment as Architects in terms of the Competition
Brief, Rules and Conditions follows on this decision.’
Events
after 1999
[8]
Nothing of consequence happened in the next couple of years, save, as
I have said, that the City was established, incorporating
the former
Council and 11 other municipalities, as a result of which the need
for additional accommodation in the municipal headquarters
grew
substantially. In January 2002 the City approached HJ and requested
it to assist with a new needs assessment – a bulking
exercise.
And on 14 April 2003 HJ wrote to the City stating that further to a
meeting with a City official, it confirmed that the
concept of the
competition was in principle acceptable to people at the meeting and
that the floor area would increase to 76 000–80
000 square
meters. The letter continued: ‘We were asked at that meeting
whether we are prepared to work in a joint venture
with a BEE
company. We confirm that since the project is to increase in scope,
we are prepared to work in a joint venture with
a BEE company.’
But it also set out the requirements that would have to be met by
such an entity before it would enter into
a joint venture with it,
and stipulated that it would do the selection of the entity in
partnership with the City.
[9]
Some ten days later the City resolved at a meeting:
‘
1
That the building of a new Municipal Headquarters for the City of
Tshwane Metropolitan Municipality on the Munitoria site, be
approved.
2
That the winning firm of the competition, Messrs Holm Jordaan &
Partners, be commissioned to render the architectural services
required for the building of a new Municipal Headquarters on
condition that such services are rendered through a joint venture
partnership with a BEE appointed by Council on its (Council) own
terms and condition. . . . .
5
That the various funding options for the rebuilding of a Municipal
Headquarters be investigated by the Municipal Manager in consultation
with the Chief Financial Officer. . . .’
[10]
The City advised HJ of the resolutions by letter on 14 May 2003, and
stated that: ‘The final terms and conditions regarding
the
appointment, brief and remuneration details of this contract will
follow after agreement of the above details by all parties
concerned.’ HJ accepted the appointment on 4 June 2003, writing
to the City that they had noted the condition in relation
to a ‘BEE
appointed company’. It said that although this had not been a
requirement of the competition ‘we are
prepared to accommodate
BEE involvement’. It continued to say that to avoid ‘fruitless
expenditure’ it and the
City would have to agree on the BEE
requirement, the payment of outstanding fees and the confirmation of
the programme.
[11]
HJ did further work in evaluating the project to which the City had
agreed. The requirements for the new headquarters of the
City had
increased very substantially. The work done by HJ on the bulking
exercise and on the re-evaluation of the requirements
of space was
also substantial. Even prior to the meeting of the City in April
2003, it had sent to the City a second interim account,
dated 24
March 2003, for payment of a fee of R3 080 207.35. HJ was eventually
paid these fees.
[12]
In a report that HJ sent to the City on 6 August 2003 it estimated
that the total new project cost would be in excess of R1.2
billion.
And it sent a further invoice for R1 117 373.73 for the work it
had done already. It also wrote to the City, on 18
July 2003,
reminding it of the statement in the appointment letter that the
final terms and conditions regarding appointment, brief
and
remuneration details of the contract would follow after agreement
between ‘all parties concerned’. The letter continued:
‘We are of the opinion that the appointment of the BEE
architectural joint venture partner has progressed to the extent
where a proper Client/Architect agreement can now be signed between
the parties.’ The writer thus enclosed the standard
client/architect
agreement recommended by the Institute of South
African Architects (the Institute) with the letter.
[13]
At this stage no BEE entity had been identified and, as the letter
from HJ showed, it was anticipated that a formal agreement
had still
to be concluded. I shall revert to this issue when dealing with the
legal principles that determine whether a contract
has been
concluded.
[14]
The response of the City, written by the Deputy Manager,
Architectural Services on 15 October 2003, was that the final terms
of the contract had yet to be negotiated – as HJ had itself
said. It confirmed the work that HJ had performed already and
stated:
‘At this stage my Council is considering various options to
finance the project. . . . You are therefore requested
not to proceed
with any further work on the project until further instruction.’
[15]
The City then commissioned various feasibility studies for the
project and called on interested parties to comment on the studies.
It suggested a different project entirely. HJ did comment, pointing
out the report’s failure to mention its earlier involvement
and
that as a result of winning the competition it was entitled to be
appointed as the architect for the new municipal headquarters.
On 25
January 2009, the acting municipal manager wrote to HJ
explaining that it was contemplating a Public Private Partnership
(PPP) which would have to be approved by National Treasury, and
advised that, as a result of the public process of calling for
comment on the feasibility study, the council of the City had
rescinded the council resolution of 24 April 2003, and that the City
had given its approval in principle to a PPP. He said that
‘your appointment to Phoenix was subject to the condition,
amongst others, that [the City] had reserved the right not to proceed
with the Project’. He advised that HJ was entitled
to
participate in the PPP procurement bidding process.
[16]
HJ regarded this as a repudiation of the contract between it and the
City, accepted the repudiation through a letter sent by
its
attorneys, and advised that it would take legal action – hence
the action for damages that was brought before the high
court. The
issues for determination, as they were crystallised at the hearing of
the appeal, are thus whether a contract between
HJ and the City ever
came into existence, and if so, whether it was repudiated. (I shall
not deal with the various defences that
were raised by the City
during the course of the trial – and which occasioned
considerable delay in its hearing – that
are no longer
relevant.)
Did
a contract between HJ and the City, on the terms alleged by HJ, ever
come into existence?
[17]
HJ contended before the high court and before this court on appeal
that a contract in terms of which it was commissioned as
architect
for the entire project was concluded in three stages: on 24 April
2003 when the City adopted the resolutions that I referred
to
earlier; on 14 May 2003 when those resolutions were communicated to
HJ and on 4 June 2003 when HJ accepted the offer made when
the
resolutions were communicated. This was, of course, preceded by the
competition held in 1998, where HJ had won the right to
be
commissioned for the project that was the subject of the competition.
[18]
But, as Louw J found, the right to be commissioned as architect for
the remaining stages of the project (the first two having
been
completed as part of the competition) was conditional on funding
being found, and was also conditional on the Council, and
later the
City, proceeding with the project. HJ’s response to that on
appeal is that the right may have been conditional
on the decision by
the City to proceed, but that that condition was fulfilled –
and the decision made – when the City
passed the resolution to
appoint HJ as the architect.
[19]
However, that resolution was itself conditional on HJ entering into a
joint venture partnership with a BEE entity and it was
implicit in
the resolutions passed and the letter communicating them that funding
for the project had still to be found. As the
correspondence referred
to earlier shows, no BEE entity was ever identified. So a party to
the alleged contract was not known and
other material terms of the
contract were not agreed. The terms of the competition rules had long
become irrelevant. Project Phoenix
was no more.
[20]
An entirely different project was contemplated when the City passed
the resolutions, and indeed, much of the work that HJ had
done in the
‘bulking’ exercise and subsequently showed that the
project was infinitely bigger in scale and cost than
that originally
anticipated. The area of the municipal headquarters was considerably
greater and the estimated cost had gone from
R160 million to an
amount in excess of R1.2 billion.
[21]
The terms of the contract had thus still to be agreed to identify not
only a party to it (the BEE entity) but the way in which
HJ was to be
remunerated, and the respective roles of HJ and the unidentified BEE
entity, amongst other things. HJ in effect argued
that there was a
contract with an unknown entity and on uncertain terms that would
have been material.
[22]
It sought to avoid this seemingly insurmountable problem by relying
on this court’s decision in
Command Protection Services
(Gauteng) Pty Ltd t/a Maxi Security v South African Post Office Ltd
2013 (2) SA 133
(SCA). In dealing with the principle that not all
terms of a contract need be determined before a contract is
concluded, Brand
JA said (paras 12 and 13):
‘
It
frequently happens, particularly in complicated transactions, that
the parties reach agreement by tender (or offer) and acceptance
while
there are clearly some outstanding issues that require further
negotiation and agreement. Our case law recognises that
in these
situations there are two possibilities. The first is that the
agreement reached by the acceptance of the offer lacked
animus
contrahendi because it was conditional upon consensus being reached,
after further negotiation, on the outstanding issues.
In that event
the law will recognise no contractual relationship, the offer and
acceptance notwithstanding, unless and until
the outstanding issues
have been settled by agreement. The second possibility is that the
parties intended that the acceptance
of the offer would give rise to
a binding contract and that the outstanding issues would merely be
left for later negotiation.
If in this event the parties should fail
to reach agreement on the outstanding issues, the original
contract would prevail
(see eg
CGEE
Alsthom Equipments et Enterprises Electriques, South African Division
v GKN Sankey (Pty) Ltd
1987
(1) SA 81
(A)
at
92A – E;
Namibian
Minerals Corporation Ltd v Benguela Concessions Ltd
[1996] ZASCA 140
;
1997
(2) SA 548
(A)
([1997]
1 All SA 191)
at 567A – C).
Illustrations of
cases that were held by this court to be manifestations of the
first
possibility
are to be found in
Namibian
Minerals Corporation
and in
Premier,
Free State, and Others v Firechem Free State (Pty) Ltd
2000
(4) SA 413
(SCA)
([2000]
3 All SA 247)
, while the facts in
Alsthom
Equipment
and in
Murray
& Roberts Construction Ltd v Finat Properties (Pty) Ltd
1991
(1) SA 508
(A)
were held to demonstrate the second (see also
Lewis
v Oneanate (Pty) Ltd and Another
1992
(4) SA 811 (A)
at 820I – 821E). The criterion as to whether the facts of a
particular case indicate the one or the other was succinctly
summarised thus by Corbett JA in
Alsthom
Equipments
at 92E – F:
“
Whether
in a particular case the initial agreement acquires contractual force
or not depends upon the intention of the parties,
which is to be
gathered from their conduct, the terms of the agreement and the
surrounding circumstances. . . .”
[23]
In my view it is clear that, whatever HJ’s intention is now
said to be, the City regarded the terms that had still to
be
determined as crucial to the conclusion of the contract. That appears
from the documents that I have referred to. Moreover,
it was HJ’s
view too, communicated by its letter sent to the City on 18 July 2003
requesting that a proper agreement be concluded
on the terms of the
standard agreement approved by the Institute. The parties simply
could not have intended that material terms
of the contract would be
negotiated in the future. There was nothing to fall back on if those
terms were eventually not agreed.
[24]
Moreover, as the City argued, no agreement had been reached on the
scope of the work; the allocation of responsibilities; the
limitation
of responsibilities; the fees or methods of calculating them; the
provisions for termination; the details of professional
indemnity
insurance and the provisions for dispute resolution. These terms are
essential to an architect’s commission in
terms of rule 3 of
Board Notice 28 of 2004 (
GG
26143 of 19 March 2004),
promulgated under the
Architectural Profession Act 44 of 2000
, which
sets out the code of professional conduct for architects.
[25]
I find, accordingly, that no contract commissioning HJ as the
architect for the building of municipal headquarters, contemplated
when the City resolved to appoint HJ, together with a BEE entity in a
joint venture, ever materialized. The action had to fail
on this
basis alone.
Repudiation
[26]
However, I think it important to say something about the claim that
the City had repudiated the contract and was liable for
damages as
fees lost by HJ as a result. If the court had found that there was in
fact a contract concluded between HJ and the City,
it was always the
prerogative of the City not to go ahead with the project. No owner is
ever obliged to continue with building
or even to commence building
simply because it has commissioned an architect to design one. The
commissioning of an architect does
not entail an obligation to build.
The architect is entitled to fees for work done: not to fees for the
building project as a whole
where the project is not commenced or is
stopped.
[27]
I do not think it necessary to discuss the nature of an architect’s
contract with an owner, given the conclusion to which
I have already
come. But for the sake of completeness I refer to the standard terms
of appointment used by the City, and of those
that were suggested by
HJ (approved by the Institute), in terms of which the City (as the
owner) has the right to suspend the project,
in which case the
architect was entitled to full remuneration for services rendered and
disbursements made up till the date of
suspension. The Institute
terms provide also that if a project is resumed or reinstated after a
year, the project is to be regarded
as a ‘new commission’
and fees must be negotiated.
[28]
While HJ argued that these terms refer to a suspension, which must be
temporary in nature, and not to a project that is not
commenced, the
same principle, in my view, must a fortiori apply. As the high court
found, a suspension must include an indefinite
suspension. And I do
not accept the argument of HJ that although the building for which it
was commissioned was stopped its mandate
continued. Accordingly, even
if a contract had come into existence, the City would not have been
liable for damages for repudiation.
[29]
Regrettably, the record prepared on behalf of HG did not comply with
the rules of this court. No core bundle was provided although
it was
clearly warranted: the documents that I have referred to were
scattered in the various volumes. To add insult to injury,
numerous
irrelevant documents were included. The full transcription of the
oral evidence was said to be necessary for the purpose
of the hearing
of the appeal although much was inadmissible and very little was
referred to in the heads of argument. Non-compliance
with the rules
of court by legal representatives is to be deprecated.
[30]
The appeal is dismissed with costs including those of two counsel.
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellant: S D Wagener SC
Instructed
by: Coetzer & Partners, Arcadia
Honey
Attorneys, Bloemfontein
For
Respondent: S J Maritz SC, W Mhakari SC and A Vorster
Instructed
by: Hugo & Ngwenya Inc, Centurion
Phatshoane
Henney Attorneys, Bloemfontein