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[2024] ZAECMKHC 38
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NV Properties (Pty) Ltd v HRN Quantity Surveyors (Pty) Ltd (1827/2010) [2024] ZAECMKHC 38 (9 April 2024)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
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Policy
IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE
DIVISION, MAKHANDA)
CASE NUMBER.:
1827/2010
In the matter between:
NV
PROPERTIES (PTY)
LTD
Plaintiff
And
HRN
QUANTITY SURVEYORS (PTY) LTD
First
Defendant
AON
SOUTH AFRICA (PTY) LTD
Second Defendant
JUDGMENT
Beshe
J
[1]
Plaintiff in this
matter instituted a claim against two defendants for damages it
contends it sustained by reason of defendants’
negligence and
unlawful breach of their obligations to the plaintiff in respect of
services the defendants undertook to deliver
in terms of agreements
entered into between them and the plaintiff. The agreements were
alleged to have been entered into at different
times and in respect
of different services.
[2]
On 26 February
2021, by agreement between the parties, it was ordered that all
issues between the plaintiff and the second defendant
be separated
and be postponed sine die for determination later. In the present
proceedings I am required only to determine the
issues that are
between the plaintiff and first defendant.
The
parties
[3]
Plaintiff is
described as a company incorporated with limited liability, duly
registered in accordance with the company laws of
the Republic of
South Africa, carrying on business as a developer of immovable
property in East London and elsewhere, with its
principal place of
business and registered office at East London.
[4]
First defendant,
who I will henceforth refer to as the defendant is described as
follows:
A
company incorporated with limited liability and accordance with the
company laws of the Republic of South Africa, carrying on
business as
quantity surveyors at First Floor, A[…] H[…], O[…]
T[…], East London, with its registered
office at 5[…]
L[…] M[…] Street, K[…] W[…] Town, Eastern
Cape. Defendant is a duly registered
quantity surveyor and member of
the Association of South African Quantity Surveyors in terms of the
Quantity Surveying Profession Act 49 of 2000
.
[5]
On the 27 September
2023 the Registrar of this court issued a notice of set down to the
parties intimating that the matter has
been placed on the roll for
hearing in Makhanda on 19 February 2024 at 09h30. On the 9 January
2024 a notice of withdrawal was
filed by defendant’s attorneys
of record in terms of
Rule 16
(4) of the Rules of Court. The notice
was served on the defendant via email on 20 December 2023. There is
no indication that defendant
appointed alternative attorneys or took
any steps in light of the withdrawal of its attorneys of record. When
the matter was called
on the 19 February 2024, there was no
appearance on behalf of the defendant. Plaintiff invoked the
provisions of
Rule 39
(1) and proceeded to lead evidence in a bid to
prove its claims.
Pleadings
[6]
During or about
2005 to 2006 and at East London, plaintiff and defendant entered into
an oral agreement. The plaintiff was represented
by Mr V Nassimov,
defendant was at all material times represented by Mr Hatley, Mr Ian
Moss or Mr Johan Botha. The express alternatively
tacit,
alternatively implied salient terms of the said agreement were that:
·
defendant accepted an appointment by the plaintiff as its quantity
surveyor for the purpose of providing the plaintiff with all
services
to be performed and which would require to be performed by a quantity
surveyor prior to and during the plaintiff’s
building project
for the Cascades Apartments and Hotel (hereinafter referred to as the
project);
·
would at all times exercise reasonable professional skill, care and
diligence in the performance of its mandate and would act without
negligence, in accordance with the generally accepted standards of
members of its profession;
·
would provide plaintiff regularly and whenever required and/or
necessary and/or indicated with fully detailed and accurate cost
estimates and feasibility studies relevant to the cost, feasibility
and viability of the project;
·
would regularly and whenever required and/or necessary and/or
indicated furnish plaintiff with, and advise plaintiff in respect
of,
the full costs of the project by way of detailed measured bills of
quantities, cost estimates and projections;
·
would provide plaintiff regularly and whenever required and/or
necessary and/or indicated with all relevant feasibility studies,
information, bills of quantity and costing such as to enable
plaintiff to fully understand and appreciate the projected costs of
the project from time to time;
·
would be responsible for and timeously advise plaintiff on an ongoing
basis in respect of all issues of financial control and
responsibility in respect of the project, and to identity any risks
financial and otherwise in the project;
·
would properly and adequately define all issues relevant to and
required to be performed by first defendant in order to provide
plaintiff with accurate feasibility and cost assessment and bills of
quantities in respect of the project;
·
would timeously and properly and professionally respond to reasonable
enquiries from plaintiff, and where necessary, accurately
and
professionally adjust the necessary feasibility and costs studies and
bills of quantities to reflect such enquiries and instructions;
·
would ensure from time to time, and as was necessary on an ongoing
basis, that all feasibility studies and bills of quantities
accorded
with the project and accurately reflected the anticipated and actual
cost thereof;
·
would, wherever necessary from time to time and on an ongoing basis,
and as was required by it having regard to its professional
duty, to
re-measure the intended works and the works before they commenced and
as they progressed during the construction period,
and keep plaintiff
accurately advised of the projected and where appropriate of the
actual cost relevant to the project;
·
would at all times and on an ongoing basis provide plaintiff with all
information plaintiff required to enable plaintiff to achieve
a
proper economic assessment of the feasibility of the project,
defendant to advise plaintiff in respect of that economic assessment
and the feasibility of the project accordingly;
·
would at all times timeously provide plaintiff with an accurate
ongoing financial reporting in respect of the entire project;
·
would at all times on an ongoing basis ensure that plaintiff was
aware of the total expected final cost of the project;
·
would properly interpret and reflect allowance for escalation, and
would reflect VAT where applicable.
[7]
Plaintiff pleaded
that initially defendant furnished plaintiff with a bill of
quantities reflecting an initial building cost of
R136 000 000.00,
vat inclusive for the purpose of sectional title sale projections,
marketing and project viability.
Further that relying on defendant’s
advice and professional services, on 24 April 2007 plaintiff
concluded a written Principal
Building Agreement “JBCC”
Series 2000, 4
th
Edition with the contractor for the
project being Radon Projects (Pty) Ltd in the total contract sum, vat
inclusive of R173 280 000.00.
In deciding to undertake the
project and conclude the contract with Radon, plaintiff relied on and
acted upon defendant’s
professional advice, its quantities and
feasibility studies.
[8]
Furthermore, that
defendant, in breach of its contractual obligations arising from the
parties’ oral agreement, was negligent
in the performance of
its duties in one or more or at all, in respect of the following
aspects:
Failed
to exercise reasonable professional skill and diligence and failed to
act in a proper and professional manner;
Failed
to act in accordance with the generally accepted standard of members
of its profession;
Failed
to properly carry out and perform its appointment and mandate as
plaintiff’s quantity surveyor for the purposes outlined
earlier;
Failed
to provide plaintiff with a fully detailed accurate cost estimate and
feasibility studies relevant to the cost, feasibility
and viability
of the project;
Failed
to regularly and sufficiently furnish plaintiff with and advise
plaintiff in respect of the full cost of the project by means
of
detailed measured bill quantities.
Failed to ensure that
plaintiff was placed in possessions of all relevant feasibility
studies, information, bills of quantities
and costings such as to
enable Plaintiff to fully understand and appreciate the projected
costs of the project from time to time;
Failed to timeously
advise plaintiff in respect of the financial control and feasibility
of the project;
Failed to identify for
plaintiff the financial risks involved in the project;
Failed to adequately
define the issues relevant to and required to be performed by
defendant such as to provide Plaintiff with accurate
feasibility
assessments, cost estimates and bills of quantities in respect of the
project;
Failed to respond
properly and professionally to plaintiff’s reasonable enquiries
and failed accurately and professionally
to adjust necessary
feasibility studies, cots estimates and bills of quantities to
reflect such enquiries and instructions;
Failed timeously and
properly in the exercise of its professional duty to provide
plaintiff with the necessary correct and accurate
feasibility
studies, cost estimates and bills of quantities, re-measured where
necessary;
Failed to ensure that all
feasibility studies, cost estimates and bills of quantities accorded
with the intended project and accurately
reflected the anticipated
and actual cost thereof from time to time;
Failed to re-measure the
intended works and the works on the project as they progressed during
the construction period, and failed
to keep plaintiff accurately
advised of the projected and where appropriate actual cost relevant
to the project;
Failed at all times
relevant and on an ongoing basis to provide plaintiff with correct
and accurate information plaintiff required
to enable plaintiff to
achieve a proper economic assessment of the feasibility of the
project, and failed to advise plaintiff in
respect of that economic
assessment and feasibility of the project;
Failed to timeously
provide Plaintiff with accurate financial reporting in respect of the
entire project;
Failed at all times
relevant to ensure that Plaintiff was aware at all times material of
the total expected final cost of the project;
Failed to properly
interpret and reflect allowances for escalation relevant to the
costing of the project;
Omitted to make allowance
for VAT in the cost reports relevant;
Failed to ensure that
there were no unacceptable, unexpected or untoward deviations between
the provisional bills of quantities
and the cost reports produced
from time to time;
Failed to re-measure the
works either as was required from time to time or as was requested
and instructed by plaintiff as was timeously
required;
In purported performance
of its mandate, but negligently in breach thereof defendant produced
cost reporting showing extreme variants
from that originally
projected figure;
It was late in its
financial reporting to plaintiff acting with undue delay;
Failed to inform
plaintiff timeously of the total expected final cost of the project
and plaintiff’s investment therein;
Failed to properly
interpret and reflect allowances for escalation and failed to reflect
VAT on occasion where applicable.
Prepared the provisional
bill of quantities:
based on drawings which
had not been approved by the plaintiff;
without establishing or
anticipating the design criteria of the hotel and apartments
regarding finishes, concrete structure and
additional accommodation;
based on limited and
inadequate drawings and information;
without input from other
discipline, including architects and engineers, in order to obtain
sufficient information and specifications
in regard to design
elements, structural information, sprinklers, air conditioning, steel
reinforcement allowances, fittings, kitchen
layout and back of house
facilities;
without seeking
clarification and detailed information in regard to design aspects
from the design team, including the architect
or engineer;
without making adequate
allowance for aspects which were not indicated or shown on the
drawings, including the fitment of sprinklers,
air conditioning,
steel reinforcement, fittings, kitchen layout and back of house
facilities;
without utilising its
costing to control the design;
without properly taking
into account costs which influenced the viability of the project;
without due consideration
for the extension of commencement dates or the increase of floor
areas;
without the necessary
structural information.
wrongfully and
negligently utilised the provisional bill of quantities as a basis
for cost development reporting to the plaintiff.
made numerous errors in
estimates and cost reporting presented to the plaintiff, including,
inter alia, the following:
the rates used for cost
reporting were not always based on the scheduled rates in the
provisional bill of quantities;
allowances for escalation
when estimates were done were not in terms of information published
in the BER index.
Cashflow forecasts were
defective in that:
in the cashflow forecast
prepared on 26 February 2007 regarding interior design costs, the
nett cost of the items was tabulated
by purely taking into account
the amounts in the provisional bill of quantities without allowance
for:
·
profit on provisional sums for selected
subcontractors;
·
increases for the various items affected by
the increased areas of the complex.
these incorrectly stated,
in item 4.5 of the aforesaid report, that proportionate P&G and
mark-up had been allocated when this
was not correct;
the figures for purposes
of the aforesaid report were incorrectly altered;
in cashflow forecasts of
payment of preliminaries dated 5 March 2007 no allowance was provided
for increased area.
in the preliminary
cashflow forecast dated 5 March 2007 no allowance was made for
increased area;
there were discrepancies
in area allowances in the estimates.
Defendant
d
id not follow the instructions of the plaintiff to consider
the cost implications of the re-measure of the concrete structure
after
receipt of structural drawings from the Project Engineers, May
Houseman & Associates ("MHA")
.
Failed to exercise proper
budget control.
Failed to follow the
instructions received by it from the Plaintiff in that:
Failed to follow the
instructions contained in plaintiff's letter addressed to the
defendant on 14 March 2007 to make a calculation
of the cost of the
structure as prepared by MHA to compare this with the actual costs as
contained in the Contractor's bill of
quantities and to make all
necessary adjustments to the prevailing allowances and cost
implications. A copy of the Plaintiff's
letter is attached
hereto marked annexure '
POC4
';
Failed to follow the
instructions contained in the plaintiff's letter to the defendant on
23 March 2007 to provide an estimate for
the increased building area
of 3 523 m² and to do costing analyses of foundations and level
of parking which was then currently
in Phase 1 of Cascades. A
copy of Plaintiff's letter is attached hereto marked annexure '
POC5
';
Failed to follow the
plaintiff's instruction given to it at the consultants meeting on 29
March 2007 to resolve the increased areas
budget and the possible
savings on the provisional sums;
Failed to follow the
Plaintiff's instructions contained in plaintiff's letter to defendant
dated 29 June 2007 to immediately commence
the re-measurement of the
bill of quantities into separate blocks for purposes of Industrial
Development Corporation financing.
A copy of Plaintiff's letter
is attached hereto marked annexure '
POC6
';
Failed to follow
plaintiff's instruction contained in Plaintiff's letter to defendant
dated 15 October 2007 to prepare a detailed
cost report, including a
breakdown of increased cost in each area and the reasons therefor.
A copy of Plaintiff's letter
is attached hereto marked annexure
'
POC7
';
Failed
to follow plaintiff's instruction contained in plaintiff's letter
addressed to defendant on 16 October 2007 to exercise cost
control
and to ensure that any amounts exceeding the budget must first be
authorised by the plaintiff before put in hand.
A copy of
Plaintiff's letter is attached hereto marked annexure '
POC8
';
Failed to update the
re-measurement of the provisional bill of quantities timeously.
Failed to be proactive in
regard to design aspects in that:
Failed
to take design into consideration;
Failed to enquire from
the design team, either architect or engineer, for detailed
information where the design was not clear or
was dubious;
Failed to make adequate
allowances for aspects which were not indicated or shown on the
drawings or specifications;
Failed to make allowance
in the costing of aspects such as sprinklers, air conditioning, steel
reinforcement allowances, fittings,
kitchen layout, back of house
facilities, etc;
Failed to use the costing
to control the design as the most important aspect of commercial
development are the costs which influence
the viability of the
project and not the design;
Failed to ensure that the
design was reflected in the costing done by it and that the design
was subject to the costs;
Failed
to report back to the plaintiff with necessary updated estimates when
dates of commencement were extended or floor areas
were increased.
Failed to re-measure
trades.
Failed to provide proper
cost reporting.
Failed to conduct proper
initial estimated taking off of measurements.
Made an under-measurement
of R16,294,484.00, details of which are apparent from the schedule
attached hereto marked annexure "
POC2
".
[9]
As a result of
defendant’s breach of contract, plaintiff decided to proceed
with the project in circumstances where had plaintiff
been properly
and accurately informed of all financial issues, it would have
investigated means of reducing the project costs,
alternatively would
have proceeded on a smaller project. The commencement project was
delayed by 120 days which led to the delay
in the commencement of
hotel operations by 120 days. Resulting in plaintiff suffering loss
of revenue of R2 836 091.92. there
was an untoward and
unacceptable variance between the final cost of Cascades 1 of
R10,6049,856.61 (VAT inclusive) and Cascades
2 of R85,471,635.92 (VAT
inclusive), (a total of R191,521,501.53), this being a deviation of
10.53% from the original projected
contract sum given on 24 April
2007 of R173,283,000.00, having in addition, and in its bill analysis
relevant to cost report no.
14, projected a variance of
R48,533,835.98 (a total cost of R221,813,835.98), resulting in a
projected cost variation of 28% from
that estimated in April 2007.
There arose an increase in total escalation, this having been
estimated in the provisional bill of
quantities at R5,000,000.00 (VAT
inclusive) to R19,489,388.58 (VAT inclusive), an increase of 290%.
[10]
Plaintiff further
pleaded that both parties knew that plaintiff intended to rely upon
defendant’s expertise and proper and
professional conduct in
the performance of its contractual obligation. The damages claimed
flow naturally and generally from defendant’s
breach. As a
consequence, plaintiff suffered the following damages:
Claim
1
Cascades
1
By
reducing the size of several aspects of the structure plaintiff would
have saved R10 532 343.00.
Compound
interest in the sum of R10 532 343.00.
Claim
2: Loss of Revenue
11.10
As a result of the breach of contract and negligence adverted to
above, the project was delayed, and the commencement of the
operations of the hotel was set back by 120 days in respect of
Cascades One, plaintiff suffering a loss of revenue accordingly
in
respect thereof.
11.11
The projected revenue in respect of the hotel for one year on a pro
rate basis calculated on 147 rooms, resultant in a loss
of revenue to
plaintiff in the sum of R2,836,091.92.
Defendant’s
plea
[11]
Defendant admits
entering into a contract with plaintiff from about December 2005.
That same was oral. Salient features thereof
being inter alia that
defendant would provide to the plaintiff standard services performed
by a quantity surveyor as set out in
Clauses 11.36, 11.37, 11.38 and
11.39 of the Tariff of Professional Fees of 2005 of the Council for
Quantity Surveying Profession.
That same would be performed at the
request and instance of the plaintiff as is appropriate to the stages
of the project. Defendant
proceeds to enumerate what the service
would provide / or what services it was to provide. To a large extent
confirms what is stated
by plaintiff in its particulars of claim
regarding what performance was expected of the defendant. Defendant
divides the services
into four sections which are A, B, C and D.
[12]
Defendant pleads
that the appointment was for a project which only involved the
building of apartments. That the building of a
hotel was a variation
and development of the original project. Denies that the standard
services agreed upon include the provision
of a feasibility
study/studies, any assessment of viability of the project, provision
of on-going bills of quantities, being responsible
in respect of all
issues of financial control. Denies it was required to adjust the
bill of quantities to reflect enquiries or
instructions from
plaintiff. Denies that it agreed to provide reports which made
plaintiff aware of the total expected final cost
of the project. That
such reports were impossible in a project which developed and changed
from time to time. Denied that the construction
contract was entered
into relying solely on the accuracy of the provisional bill of
quantities. Defendant pleads that plaintiff
did not execute the
project in accordance with the designs upon which the Provisional
Bill of Quantities was based. The drawings
used for the preparation
of the provisional bill of quantities was provided by the architect
then employed by the plaintiff. At
the time of the preparation of the
provisional bill of quantities many aspects of the design were not
finalised. This was known
to the plaintiff. Defendant warned the
plaintiff as to the cost implications of the variations of the
project design. Defendant
denies the sums averred as cost variations
and puts plaintiff to the proof thereof. Denies that increase in
total escalation is
due to its negligence. Denies that it breached
the agreement between the parties and that through its negligence the
commencement
of the hotel operations was delayed. Denies that
plaintiff suffered loss of revenue as alleged.
[13]
defendant instead
instituted counterclaim against the plaintiff for professional fees
it alleged the plaintiff failed to pay to
it. Plaintiff denied being
liable for such professional fees.
Evidence
[14]
In a bid to prove its claims plaintiff led evidence from four
witnesses. The summons was issued as far back as in 2010.
A lot seems
to have happened in the meantime, including the demise of two expert
witnesses who were appointed by the plaintiff
and had compiled
reports in connection with this matter. Those being Professor Piet
Botha, a quantity surveyor and Mr Thompson,
an architect. This led to
plaintiff engaging Mr Nigel Sessions to also deal with what is
covered in the two reports.
[15]
First to testify
was Mr Neil Thomas Howell (Howell), an architect who has been in
practice for 30 years. He testified that he had
been involved in
several hotel projects that were undertaken by the plaintiff. Howell
took the court through his report which,
briefly stated, reveals that
as a firm of architects they were appointed by the plaintiff as
architects and principal agent for
the project. He prepared the
contract drawing for the Premier Hotel, East London ICC, East London.
He was also asked by the plaintiff
to investigate whether it would
have been possible to reduce the size of certain areas of the hotel
so as to achieve savings. He
gave his opinion about reduction in size
that could be made to reduce costs and gave details thereof. This is
because plaintiff
was faced with a budget overflow. He testified that
the budget overrun was identified well into the project because they
did not
have updated feasibility and estimates from the quantity
surveyors. Having taken the court through the reduction in size of
modules
etc, he concluded that with the conservative approach he
took, the total area saved would have been 2.307.5 square metres.
Howell
testified that the reduction in the size of the modules would
have resulted in a cost saving without impacting on the final product
and making it less desirable, because the bigger the
structure/building, the more it will cost. At the time they were
roped in
defendant has done estimates on the project based on the
original drawings so were feasibilities.
[16]
Next to testify was
Mr Nigel David Griffin Sessions (Sessions), a quantity surveyor with
a number of qualifications. He is a registered
quantity surveyor in
South Africa. He qualified as a quantity surveyor in 1982 and has his
own firm of quantity surveyors under
the style NS Solving. He was
appointed by the plaintiff to investigate the services provided by
the defendant and to express an
opinion as to inter alia, whether the
services met the employer’s brief, whether they were in
accordance with accepted professional
standards and whether defendant
was negligent in any aspect. Also to express an opinion on the saving
that could have been made
had certain reductions to area, scope
reporting and project planning been affected timeously and
effectively. Mr Sessions proceeded
to take the court through the
salient features of his report. He also gave an overview of what the
services of a quantity surveyor
should cover. Namely that the
services would commence with budgeting preparing estimates for the
project. Estimations are made
at different stages of the project,
getting more and more accurate as the project progresses. With the
help received from other
members of the team such as architect and
engineers you produce your estimates. Outlined the method of arriving
at a bill of quantities.
He was referred to a document that was
prepared by the defendant in December 2005 which he described as a
preliminary estimate
and feasibility study of the project. He
testified that because defendant produced a feasibility study, there
must have been a
reason for that in response to it being pointed out
to him that defendant denies he was required to do feasibility study.
He then
took the court through the feasibility studies’
document that was compiled by the defendant which gives the estimated
cost
to be R156 444 835.00, excluding VAT and the estimates
the contract period for Cascades 1 to be 15 months. In terms of
yet
another feasibility study number 8 dated June 2006 relating to the
proposed conference centre, parking, slabs and Cascades
1 and 2.
There as well, estimates are provided in respect of each component.
He referred the court to a letter by Mr Nassimov of
the plaintiff to
the defendant on 4 July 2006 in which he raises certain concerns with
the defendant’s Mr Hatley such as
lack of consultation in
preparation of the bill of quantities, provisional bill of quantities
being produced late and excluded
the Convention Centre. He also
referred to other correspondence between the parties. One such letter
from the defendant stating
inter alia that:
‘
The
project will be managed by regular cost reporting.’
‘
That
the project will be measured as the work proceeds to provide an
on-going final account which will support the cost of the report
process.”
Having
analysed the bills of quantities vis-à-vis the purposes they
are meant to serve Mr Sessions drew certain conclusions.
As far as
the functions of the bills of quantity are concerned, he had this to
say:
It
serves three functions in the project being:
An estimating to
establish anticipated costs of project.
A
basis to negotiate a price with Radon and a cost
controlling/monitoring base for cost reporting.
He
stated that the more accurate the document, the less chances of
significant deviation. He opined that the bill of quantities
should
have been remeasured to reflect the actual design stated prevailing
at the relevant time. Even though plaintiff required
a revised bill
in June 2007, none had been provided. Sessions concluded that:
defendant failed to
establish a competent budget taking into account plaintiff’s
requirements.
Failed to produce a
competent updated bill of quantities reflecting the work to be
carried out at the time of negotiations of
the contract price with
Radon.
failed to analyse and
debate with plaintiff the risks inherent in using CPAP formula for
escalation together with an inappropriate
base date.
failed to keep their
client advised and updated on the expected final costs of the
project.
failed to provide
regular and competent cost reports from commencement of works on
site.
failed to account
timeously for increased costs.
failed to advise client
of financial risk association with escalation.
failed to accurately
assess and forecast escalation costs.
failed to compile and
issue a competent final account to the PA.
He shares the view that
had plaintiff been warned of anticipated additional costs and areas
they could have taken action to minimize
additional costs without
compromising the anticipated income. Had this occurred, a saving of
R14 000 000.00 could have
been achieved.
The
next witness to testify was Mr Kamil Abdul-Karim.
[17]
As was the case with the two previous witnesses, a notice in terms of
Rule 36
(9) (a) and (b) was filed in respect of Mr Karim, giving
notice that they will be called as expert witnesses. Mr Karim is a
managing
director of Pam Golding Hospitality and Consulting (Pty)
Ltd. He testified that he has been involved in the hospitality
business
for 26 years. He is in business with Pam Golding. The
business is involved in specialist market research in the
hospitality. As
I understand his brief, he was required to opine on
whether, had the plaintiff taken a decision to revise the floor plan
of the
overall building, that would have had an effect on pricing of
the rooms/units that were built. In other words, had plaintiff been
alerted by the quantity surveyors of the cost implication and based
on that decided to take steps to reduce the size of the room,
that
would have affected the final production and reduce its value as a
hotel. Part of their advisory role as a company entailed
being
approached by when somebody wants to build a hotel to make a
marketing study and advise the client accordingly. Regarding
the
issue at hand, Mr Karim testified that a 5 Star hotel room would be
between 32 and 36 square metres. A 4 Star hotel room (which
is what
the establishment in question is) would be between 24 and 28 square
metres. He also gave the room floor in respect of 3
Star hotel.
Regarding plaintiff’s establishment, he stated that the hotel
is sufficient at a 4 Star level with a mix of room
comprising two
penthouses, two ambassador suites, 90 suites and 166 deluxe rooms.
The deluxe rooms range between 37 square metres
to 43 square metres
and that reflects generous proportions for a contemporary 4 Star
hotel. He confirmed that by shrinking the
width of the building by 1
metre, would have resulted in a minimum saving of 4 square metres per
deluxe room. Having analysed rooms
of similar grading in other
establishments, he concluded that upscale hotel rooms are on the
average in the region of 28m².
That the reduction of plaintiff’s
hotel room size by 4m² would have had limited or no effect on
price commanded and
the ADR
[1]
achieved. Even in respect of the sectional title the best price would
have been achieved with rooms that are approximately 4m²
smaller. He also referred to academic reports which show that room
size is the least influential decision factor when it comes
to
choosing a room/hotel accommodation. He also made reference to Trip
Advisor when he described as an online platform that reviews
hotels.
He testified that, according to Trip Advisor the hotel in question is
rated third in Eastern Cape. But this may also be
due to the fact
that it has recently opened, and this is due to the “
market
gestation period
”.
[18]
Mr Karim explained
the concept of a sectional title. Briefly that you sell some rooms in
order to compliment the capital and equity
requirements in order that
you can build the hotel. That even in that case, investor is not
looking at the room size but at making
an investment. That therefore
a reduction of the room by 4m² would not have any effect on the
sectional title investment pricing.
[19]
The last witness to
give viva-voce evidence in support of the plaintiff’s case was
Mr Vyadislav Samuel Nassimov of the plaintiff.
Which as indicated
earlier is property developing company owning 14 hotels as well as
other buildings.
[20]
Nassimov’s evidence was that he met with Hatley in 1994 who
came to see him and offered his services as a quantity surveyor.
This
was after an article had been published in a newspaper that was in
talks with Buffalo City Municipality to develop a site
in East
London. Mr Hatley assisted the plaintiff in the tendering process to
acquire a site in the East London beach front. The
development in
respect of this site consists of five phases: two hotels, convention
centre, indoor sports centre and a commercial
area. They started by
building the Regent Hotel with Mr Hatley as the quantity surveyor.
Years later around 2005, Mr Hatley suggested
they look at the second
phase of the development. They decided to do a preliminary
investigation to see if the project would be
viable, a feasibility
study of phase two. He engaged Hatley who introduced him to a big
architectural company in Johannesburg seeing
that this was a big
project. They visited the offices of the Osmond Lange Architects in
Johannesburg. They were shown a Melrose
Arch hotel which the company
designed and built, a 5 Star hotel. Both he and Mr Hatley were
impressed by what thy saw. Back in
East London they approached the
Osmond Lange offices and explained to them what they had in mind,
what the phases entailed. Having
briefed Mr Bill Rabie of Osmond
Lange about what was envisaged, he (Rabie) started drawing the
Cascades Hotel concentrating on
the number of modules that can fit
into that development. Nassimov met with Rabie for this purpose a few
times. Hatley attended
some of the meetings. As the process was
unfolding, Nassimov told Mr Rabie and Mr Hatley he needed to know the
exact costs of the
project. Mr Rabie said he would not do more
detailed drawings unless he paid him more. Mr Hatley also indicated
he wanted more
money in order to do a provisional bill of costs. So,
they agreed on what amounts would be paid to each of the
professionals. The
architects worked closely with Mr Hatley who told
him what kind of finishes he must work with. After two to three weeks
Mr Hatley
told him they were finalizing the provisional bill. This
surprised him because he had not yet approved the drawings. He
conveyed
this to Mr Hatley. The latter arranged a meeting with Mr
Rabie where they showed him the drawings. The drawings as far as the
rooms
were concerned were fine but there was no provision / drawing
of the back of the house.
[2]
When he asked Mr Rabie about this, he stated he had never drawn a
design for a hotel. He sent both Mr Rabie and Mr Hatley back
to the
drawing board to redesign the hotel to have everything it requires,
or a hotel should have. But by then Mr Hatley had produced
a bill of
quantities and came with a figure of some R136 000 000.00.
Osmond Lange brought an architect from Johannesburg
who knows how to
design hotels. Which he did. This also entailed Mr Hatley having to
redraw his bill of quantities because it was
important that he
provided an accurate figure in order for plaintiff to apply for a
bond.
[21]
Regarding
defendant’s denial in the pleadings that they were required to
do in feasibility study, he drew the court’s
attention to
correspondence between the parties, in particular a letter from
defendant’s Mr Botha dated 29 December 2005
in which their
preliminary estimate and feasibility number 2 of the project are
attached. In the third paragraph thereof, the following
is recorded:
‘
Since
detail designs are still not available the estimated values have been
amended as requested by yourself, these costs must still
be regarded
as preliminary and will have to be updated when more detail design
information become available . . . . .’
He
added that defendant prepared eight feasibility reports not one. That
in fact that was part of defendant’s job. Plaintiff
could only
decide whether to proceed with a project once it has a feasibility
study report from quantity surveyors. That until
they are satisfied
that the project is feasible professionals, such as the defendant
worked at risk. It is only after a decision
is taken to go ahead with
the project that they will finalise the finances based on the costs
and then appoint the professional
teams to do the job.
[22]
On the 15 May 2006
Mr Hatley wrote to a Mr Jones calling for the provision “
of
all drawings including structural information
” on the
project. He goes on to state “
We need to receive your
structural drawings today! We are already behind even the extended
program our team ceased measuring on
Friday awaiting information
”.
[23]
Once again in June
2006 the defendant provided the plaintiff with preliminary estimates
and feasibility (no. 8). And once again
undertook to update same when
more information comes to hand.
[24]
In the meantime,
because plaintiff together with Mr Hatley and Mr Botha had done
projects previously with Radon as the contractor,
Mr Hatley suggested
they talk to Radon in connection with the cascade project.
[25]
In a letter
addressed to the architects (Osmond Lange) Mr Hatley records that he
is busy splitting the first provisional bill to
enable tendering for
phase 1 and 3 separately. In this regard Nassimov points out that the
quantity surveyors were supposed to
have split the provisional bill
of quantities from the initial stage because first phase was fully
financed by IBC. So, the splitting
of bill was supposed to have been
done from the beginning. And Mr Hatley was aware of that.
[26]
On 3 July 2007 Mr
Hatley wrote to plaintiff asking for a payment of R160 000.00 as
fees for the Provisional Bill. He also
points out that they have been
working on the project for seven months during that time provided a
detailed estimate and feasibility
studies.
[27]
In response Mr
Nassimov pointed out that the main conditions of the contract were
not complied with. Had the bill of quantities
been provided three
months earlier, they could have saved on costs of the building and
achieved completion by November 2007.
[28]
In August 2006 he
had not received a bill of quantities as well as correct phasing of
bill.
[29]
Mr Nassimov denied
that the project got bigger and bigger saying in August 2006 there
were 261 rooms, ten years later there are
still 261 rooms. That if
the defendant had measured correctly from the start, they would have
been able to tell plaintiff how much
the project will cost.
[30]
According to Mr
Nassimov, by September 2006 they had a proper structural engineer on
board who would meet with Mr Hatley and the
architect.
[31]
Mr Nassimov also
took issue with Mr Hatley’s escalation figure he provided which
in his view should have been higher.
[32]
The split bill, it
transpired, was never received by Mr Nassimov.
[33]
He also took issue
with the manner in which Mr Hatley calculated the back of the house
addition to the design. Pointing out that
he cannot calculate that
addition the same way as he did with the rooms. The cost can never be
the same. That part could be cheaper
per square metre cost wise and
explained why.
[34]
Defendant provided
a second provisional bill for R152 000 000.00. Mr Nassimov
was satisfied with the figure and felt
that the process could
proceed. They could proceed with the project.
[35]
Defendant was
supposed to provide plaintiff with further updated provisional bills
of quantity as the work progressed. He only
produced one. A month
after the contract was signed, defendant sent an estimate for R186
000 000.00 in respect of which plaintiff
queried the increase.
[36]
On 1 September
2008, defendant provided a building cost report which put the cost at
R194 451 818.71.
[37]
In a cost report
dated 24 October 2008, the estimated budget is R199 776 442.29.
[38]
Later on 25
September 2009, the cost report 8 puts the cost at R184 334 754.87.
Mr Nassimov attributed the decrease in the estimate
for costs to
their efforts to reduce costs of the building, reduced
specifications, certain items etc. However, it was too late
to change
the structure of the building. Another reason Mr Nassimov gave for
the fluctuation is that defendant was still working
on estimates and
not accurate measurements.
[39]
Mr Nassimov
testified that if defendant had provided them with the correct figure
earlier, he would have investigated how the project
could be reduced
i.e. reduce the size because he would have realised that the project
is not feasible. R152 000 000.00 was feasible.
He could even have
taken a decision not to proceed with the project. He attributes the
loss suffered as a result of the delay in
the commencement of the
project to defendant for the following reason:
Had
they been provided with a correct bill of quantities by the defendant
and the contractor does his program, he would have allocated
sufficient personnel and resources in order to achieve fulfilment of
obligation on the completion date. Because the completion
of the
project was set back by 120 days, the hotel could not start operating
at the time that it was scheduled to in the feasibility
study. That
in actual fact the extension time for the project was more than nine
months.
The
amount lost was calculated by looking at their property management
system, at the daily, monthly, and yearly revenue. And by
calculating
the difference between what they could have achieved had they opened
as scheduled.
So,
the amount claimed for in this regard is the money or income they
would have earned in the four months that the hotel had not
started
operating.
[40]
I now deal with the evidence of two experts that were appointed by
the plaintiff. In respect of both expert witnesses, plaintiff
had
given notice that it was intended to call them to testify and expert
witnesses and the reports they had compiled were duly
filed. Both
experts have since died. I am of the view that their evidence cannot
be ignored, especially in view of the fact that
aspects of their
reports were touched on by other witnesses who gave
viva-voce-evidence. In any event, I am inclined to agree with
plaintiff’s counsel that this is an appropriate case where the
evidence of the reports compiled by Mr Thompson and Professor
Botha
should be given due regard in terms of Section 3 (1) (c) of the Law
of Evidence Amendment Act.
[3]
Section 3 (1) (c) of the Act provides that hearsay evidence shall not
be admitted as evidence at criminal or civil proceedings
unless:
the
court having regard to the‒
(i)
nature of the proceedings;
(ii)
nature of the evidence;
(iii)
purpose for which it is rendered;
(iv)
the probative value of the evidence;
(v)
the reason why it is not given by the person upon whose credibility
the probative value of such depends;
(vi)
prejudice that evidence might entail to the other party;
(vii)
is of the opinion that such evidence should be admitted in the
interest of justice.
Having
had regard to the factors above, I am of the view that it will be in
the interest of justice to have regard to the two reports
in
question. Plaintiff’s particulars of claim also seem to be
based thereon to some extent. Mr Thompson was an architect
attached
to IDC Consultants, Cape Town. In his report he identified some areas
of concern based on the documentation that he evaluated,
inter alia
that:
The
documentation was still underdeveloped, and a full set of sketch
plans was not available at the time that the measurement by
quantity
surveyors took place;
There
appears to have been a complete absence of structural information;
There
is no supporting documentation to indicate specifications or details
the estimates were based on;
He
concluded that it was imprudent to undertake the development of a
provisional bill of quantities with the documentation and information
available at the time. Messrs Nassimov and Sessions also touched on
some of these aspects.
Professor
Botha was a registered Quantity Surveyor attached to Oasis Quantity
Surveyors, Pretoria, with an impressive Curriculum
Vitae. He was
briefed to ascertain from the documentation provided:
The instructions that
were given to the quantity surveyor.
The quantity surveyor’s
performance relevant thereto.
To identify breaches of
the agreement against the performance of a reasonable quantity
surveyor.
Facts and figures
relevant to each breach.
Determine the link
between breach and added costs.
Having
embarked on this exercise, he came to the following conclusion as
regards breach/negligence by defendant:
The
final bills were prepared without final authorisation from plaintiff.
At the preparation stage of the BoFQ,
[4]
defendant failed to anticipate the design criteria of the hotel and
apartments regarding finishes, concrete structure etc. as a
result of
this, the BoFQ could not be used as a basis for proper cost
development reporting from defendant. According to Professor
Botha,
inter alia the following mistakes occurred in estimates:
Cash flow forecast was
defective.
So was preliminaries
cash flow.
Professional competence
appears to be lacking.
Defendant did not follow
instructions from plaintiff.
The major issue of
negligence is not adhering to instructions.
Not updating the
measurements of the BoFQ timeously.
Errors in cash flow and
estimate forecast.
Issuing the provisional
BoFQ without authorisation from plaintiff.
The effect of the
incorrect cost control reporting affected the developer’s
feasibility on the contract and must have influenced
his decision of
what could not be provided.
Failure to be proactive
regarding design aspects.
In respect of certain
reports, it is apparent that defendant overestimated amounts and
were not meticulous in their analysis.
Defendant underestimated
the value of the final account.
Plaintiff’s
submissions
[41]
It was pointed out
that it is common cause that the parties concluded an agreement that
defendant would provide to the plaintiff
the standard services
performed by a quantity surveyor for its client.
[42]
It was submitted
that from the evidence given by the witnesses, in particular Mr
Nassimov and Mr Sessions, it is clear that defendant
breached the
contractual obligations he had to the plaintiff.
[43]
It is also clear
from the evidence that had plaintiff been properly advised by the
defendant, or if defendant had not breached
its contractual
obligations regarding feasibility, plaintiff would have taken steps
with regard to cost cutting so that it could
remain within its
budget. This was confirmed by Mr Howell as well. Mr Karim confirmed
that cost saving measures in the form of
reducing room sizes could
have been taken without affecting the status of the end product.
Further that Mr Nassimov has fully explained
the nature of the
damages plaintiff suffered and how the amounts claimed were arrived
at.
Discussion
[44]
Plaintiff is suing the defendant on the basis that as a consequence
of defendant’s failure to perform his obligations in
terms of
their agreement, plaintiff has suffered damages as set out in the
particulars of claim. Has the plaintiff succeeded in
satisfying the
court that he is entitled to his claims? In other words, has the
plaintiff proved his claims? It is trite that the
standard of proof
in civil cases is proof on a balance of probabilities.
[5]
It is common cause that defendant was appointed by the plaintiff as a
quantity surveyor. The standard services that are meant to
be
performed or provided by a quantity surveyor are tabulated under
Clause 11.0 of the definitions and interpretation of the Tariff
of
Professional Fees, a document of the South African Council for the
Quantity Surveying Profession under which Mr Hatley is also
registered. The services are divided into four, from A to D.
According to the tariff, service A means the estimating and cost
adverse stage. To me, this sounds like a feasibility of viability
study/assessment. In its plea, defendant denies that it was required
to conduce a feasibility study. But submitted a number of reports
headed “
preliminary
and feasibility study of project
”.
As Mr Sissions pointed out, there must have been a reason why
defendant produced the numerous feasibility reports. Mr Nassimov
testified that this was required of the defendant and Mr Hatley was
aware of that. In terms of the tariff, a quantity surveyor
may render
services at risk on the basis that no fee will be charged for such
services unless the project proceeds.
[6]
This is in keeping with Mr Nassimov’s evidence. It also appears
to be common cause that Mr Hatley was involved in the project
from
1994 when the first phase thereof was executed. According to Mr
Nassimov, Mr Hatley approached him and suggested he considers
going
ahead with the next stage of the project. Hence Mr Nassimov asked him
to investigate and advise him of the feasibility thereof.
I am
satisfied that the plaintiff has succeeded in showing on a balance of
probabilities that the defendant was required to conduct
a
feasibility study and advise the plaintiff accordingly. I am also
satisfied that the plaintiff has succeeded in showing that
defendant
failed to comply with plaintiff’s instructions such as
splitting the bills of quantities into two. The provision
of bills of
quantities that is:
To
provide a detailed estimate and feasibility studies. Provision of
bills of quantities timeously. Provision of accurate reliable
figures. To adjust the bill of costs. To address plaintiff’s
queries and instructions.
Plaintiff
has also shown that the project remained the same, with the same
number of rooms and did not mutate as defendant pleaded.
Plaintiff
also placed evidence before court to show that had it been aware of
the figures involved at an early stage, had defendant
performed its
obligations with care, professionalism and diligence, plaintiff would
have taken steps to reduce the costs it ended
up incurring. That the
completion of the project would not have been delayed by over nine
months. That it would have been possible
to reduce the size of the
rooms/certain areas without impacting the desirability of the final
product. This was confirmed by Mr
Howell and Mr Karim. Mr Sessions
confirmed that in his opinion defendant failed to, inter alia:
establish
a competence budget taking into account plaintiff’s
instructions;
produce
a competent updated bill of quantities, reflecting work to be carried
out at the time of negotiations of the contract price;
to
keep plaintiff advised and updated on the total cost of the project;
etc.
He
also confirmed that had the plaintiff been warned of anticipated
additional costs, they could have taken steps to minimize additional
cost without compromising the anticipated income. In the process,
would have saved R14 000 000.00.
[45]
Mr Nassimov’s
evidence was also confirmed by Professor Botha and Mr Thompson’s
reports.
[46]
As far as the
amounts claimed in respect of claims 1 and 2, I am satisfied that the
amounts claimed have been adequately explained
and appear to be
reasonable.
[47]
I am satisfied that
the evidence adduced by the plaintiff shows on a balance of
probabilities that the defendant is guilty of breaching
its
obligations towards the plaintiff in accordance with the oral
agreement entered into between the parties in respect of which
defendant was to render the services of a quantity surveyor.
Order
[48]
Consequently, the
following order is made:
(a) Judgment is granted
in favour of the plaintiff for the payment of the sums of R10 532
343.00 and R2 836 091.92 in respect of
claims 1 and 2 respectively as
and for damages.
(b) Interest on the
aforesaid sums at the prevailing legal rate from date of summons to
date of payment.
(c) Costs of suit,
including costs of two counsel, where so employed.
(d) Qualifying expenses
of all expert witnesses in respect of who plaintiff delivered notices
in terms of Rule 30 of the Uniform
Rules of this court, including
Professor Both, Mr Thompson, Mr Sessions, Mr Howell and Mr Kamil
Abdul-Karim.
N G BESHE
JUDGE OF THE HIGH
COURT
APPEARANCES
For
the Plaintiff:
Adv: Ford SC
Instructed
by:
HUXTABLE
ATTORNEYS
26
New Street
MAKHANDA
Ref: O
HUXTABLE/cl/02S234001L289
Tel.: 046 – 622
2692
For
the 1
st
Defendant: NO APPEARANCES
Instructed
by:
Date
Heard:
19
and 20 February 2024
Date
Reserved:
20 February 2024
Date
Delivered:
9 April 2024
[1]
ADR:
Average Daily Rate.
[2]
Is
the area where staff come in, where the kitchen, laundry, cold
rooms, store rooms etc are located.
[3]
Act
45 of 1988.
[4]
Which
I understand to be bill of quantities.
[5]
See
Peregrine Group (Pty) Ltd v Peregrine Holdings Ltd
2001 (3) SA 1268
SCA at 1275.
[6]
Clause
11.40.