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[2018] ZAECELLC 3
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Aveng Grinaker v MEC Department of Human Settlements (EL459/15) [2018] ZAECELLC 3; [2018] 3 All SA 466 (ECLD, East London) (5 June 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE CIRCUIT LOCAL DIVISION, EAST LONDON)
Case
No: EL459/15
5/6/2018
In
the matter between:
AVENG
GRINAKER PLAINTIFF
and
MEC
DEPARTMENT OF HUMAN
SETTLEMENTS DEFENDANT
JUDGMENT
MAGEZA
AJ
[1]
This is a claim brought by plaintiff against defendant for the
payment of a sum of
R3 038 972.00 reflected in an ‘
interim
payment certificate’
issued and authorised by a principal
agent, Mr Dennis Taylor for payment by defendant. The claim arises
pursuant to a construction
services bid awarded to plaintiff by the
defendant for the rectification of defectively built homes in the
Mount Ayliff Municipal
area.
[2]
For purposes of regulating the relationship between the parties to
the project, two
agreements were concluded and dated 21 June 2012 and
these are collectively, the Joint Building Contractors Committee
(JBCC) [2000]
Agreement and a Funding Agreement. It is common cause
that the JBCC Agreement is an industry standard building contract.
The second
document, the Funding Agreement, is a document generated
by the department regulating various aspects relating to the
provision
of housing. Mr Gregory Bradford, an engineer employed by
plaintiff and Mr G. Sharpley as head of the department of human
settlements
(the defendant), respectively represented the plaintiff
and the defendant and are signatories to both documents.
[3]
The preface of the JBCC agreement denotes that the document is an
industry agreement
–
“…
compiled
in the interests of standardisation and portray(s) the consensus view
of the Joint Building Contracts Committee of good
practice and an
equitable distribution of contractual risk. The document sets out a
clear, balanced and enforceable set of procedures,
rights and
obligations, which when competently managed and administered, protect
the employer, contractor and subcontractors alike…”
[4]
Important Clauses contained in the ‘
Definitions and
Interpretation’
are set out and I enumerate some of these
as follows -
Clause
1.1:
‘
Agreement’
–
“
means this JBCC Principal Agreement and
other contract documents that together form the contract between the
employer and contractor
”.
‘
Payment
Certificate’ –
“
means a document issued by the
principal agent
certifying
the amount due and payable by the
employer
to the contractor or vice versa”
.
‘
Principal
Agent’ –
“
means the person or entity appointed by
the
employer and
named in the schedule”.
Clause
1.8
:
“
This
agreement is the entire contract between the parties regarding the
matters addressed in this agreement. No representations,
terms,
conditions or warranties not contained in this agreement shall be
binding on the parties. No agreement or addendum varying,
adding to,
deleting or cancelling this agreement shall be effective unless
reduced to writing and signed by the parties”.
Clause
2.1:
“
The
objective of this agreement is the execution of and payment for the
works for which there has been an offer by the contractor
and an
acceptance by the employer”.
Clause
5.1:
“
The
employer shall appoint the principal agent as stated in the schedule.
The employer warrants that:
5.1.1
The principal agent has full authority and obligation to act in terms
of the agreement.
Clause
5.3:
“
The
principal agent shall be the only person who shall have the authority
to bind the employer, except where agents issue contract
instructions
under the delegated authority in terms of 5.3.2. Without delegating
from the above, the principal agent shall be the
only person
empowered to:
5.3.1
Issue contract instructions, except as provided for in terms of 5.3.2
5.3.2
Delegate to other agents, authority to issue contract instructions
and perform such duties as may be required
for specific aspects of
the works, provided that the contractor is given notice of such
delegation”
The
role of the principal agent:
[5]
It is generally accepted in the South African and International
building industry
that the Joint Building Contracts Committee (JBCC)
- Principal Building Agreement makes provision for the contractual
participation
of various professional service providers within the
construction industry including architects, engineers and quantity
surveyors.
It is an industry norm that the contract once concluded,
constitutes an essential tool for organising and managing all risks,
rights,
duties, responsibilities of the co-contractors that may
surface and affect parties involved in building works.
[6]
The principal agent represents the employer, is not a party to the
JBCC agreement
and is a key independent professional role player with
extensive authority to bind the employer. His or her role contributes
to
the strength or weakness of the entire building project and
manages the services of all consultants during project
implementation,
ensuring the best interests of the employer. The
principal agent issues instructions on behalf of the employer
(presumably in good
faith) and binds the employer. In the course of
the works the employer is not precluded from appointing other
professionals for
additional oversight.
[7]
The employer warrants that the agent has full authority and the only
person authorized
to bind the employer and issues payment
certificates each month. The employer is bound to pay to a contractor
the amount certified
by the principal agent within 21 Calender days.
Evidence
of Mr Gregory Bradford on behalf of plaintiff:
[8]
The only witness called on behalf of the plaintiff was Mr Bradford
and he testified
that sometime in 2012, the plaintiff responded to a
general bid invitation to tender issued by the defendant for the
rectification
of defectively built houses totalling 700 hundred units
in Mount Ayliff, district of the Alfred Nzo Municipality. The defects
were
a result of poor construction workmanship rendered.
[9]
In the course of his evidence he stated that the bid price was an
inclusive bid- price
of R59 417 491.00 and implementation
entailed that the works be assessed, re-measured, and inputs be
quantified by a
quantity surveyor. He explained the process by making
reference to analogies including,
inter alia,
that the
necessary amount of concrete was agreed and quoted at a price-rate
per cubic meter and this also depended on the strength
of the
concrete and where it was to be utilised.
[10]
The agreed format was that brick-work or block-work would be 140mm or
110mm and plaintiff priced
the same assessing (together with the
principal agent), product needs for the project and together
(jointly) priced each in line
with the Bill of Quantities, a tool
that yields estimated figures. Each item would then be priced at a
rate. This included pricing
windows and other items required to
produce the correct result in all the 700 houses to be rectified.
[11]
The commencement date provided for in the agreement was 15 March 2012
and, although this was
the case, based on an earlier agreement
between the parties, plaintiff commenced the works (earlier than
contemplated) in October
2011. He explained that the Bill of
Quantities is a working document which generally reflected an ‘over
or under’ estimate
re-measurable and reconciled at the end the
project or contract term.
[12]
At page 118 (A5) and 152 (A39) Clause 42.4.3 of the JBCC Agreement
[page 151 of the bundle] (A38)
states 42.4.3 Bill of Quantities,
state measuring system, standard system of measuring building works,
6
th
Edition. This is a standard measuring system using
square blocks. A5 of the bundle deals with the definition of the
stage of completion
as being – [Final completion page 118
(Heading)] – “
...the stage of completion where, in the
opinion of the principal agent, works are free of defects”.
[13]
At page 131 under clause 5 – employers agents - 5.3.1 states
‘
the principal agent shall be the only person who shall have
the authority to bind the employer, except where agents issue
contract
instructions under delegated authority. The agent is the
state’s fully authorised representative on site –
See
(5.1 and 5.1.1). See also page 125, (A12) in bundle and
15.2.1#
(denotes government project).
[14]
He testified that from commencement of the works, plaintiff was not
afforded possession of the
site because there were people in
occupation of some of the defective properties and it was defendant’s
contractual duty
to ensure people were timeously moved from the site.
The defendant also failed to provide a transition camp for those in
occupation
as undertaken in the rectification agreement. This
naturally caused delay in the substantive commencement and
implementation of
the project in line with the agreement.
[15]
At page 132 (A19) clause 26, the contract makes provision as follows–
Final Completion
– “
A certificate of final completion
issued in terms of clause 26.0 shall be conclusive evidence as to the
sufficiency of the works
and the contractor’s obligations in
terms of 2.0 and 15.0 have been fulfilled other than for latent
defects.”
# At page 146 (A33) clause 26.6 also provides
that – “
A certificate of final completion issued in
terms of 26.0 shall be prima facie evidence as to the sufficiency of
the works and that
the contractor’s obligations in terms of 2.0
and 15.0 have been fulfilled other than for latent defects”.
[16]
Once the certificate is correctly signed, Clause 26 on page 132 read
with 146 and 26.6, the certificate
of completion shall constitute
proof that contractual obligations have been fulfilled. The
certificate is issued by the principal
agent. At page 31 Plaintiff’s
trial bundle- exhibit ‘A’, is copy of the document is
signed by Plaintiff; Mr Dennis
Taylor as principal agent; Mr Pikwa of
the Mount Ayliff Municipality; Also signed on behalf of Human
Settlements by a Mr Beja.
[17]
At para 29.2# State provision, are the circumstances for which the
contractor is entitled to
revision of the date for practical
completion and for which revision, the principal agent shall adjust
the contract value in terms
of clause 32.1.2 are delays to practical
completion caused by … 29.2.1 “
Failure to give
possession of the site to the contractor in terms of 15.2.1.”
[18]
Para 29.3 deals with “
Further circumstances for which the
contractor is entitled to revision of the date for practical
completion are delays to practical
completion caused by any other
cause beyond the contractor’s reasonable control that could
reasonably not have been anticipated
or provided for
.”
[19]
Mr Bradford testified that the result would be that the contractor is
entitled to revision of
the date for practical completion caused by
any other reason beyond the contractor’s reasonable control
that could reasonably
not have been anticipated and provided for. He
stated by way of illustration that if the company has a big building
team, it costs
a lot of money daily to retain and provide
accommodation and to pay wages/salaries. He stated that in this case,
defendant failed
to do what it was supposed to do. Ultimately this,
according to him, was what this trial was about.
[20]
At page 134 of the bundle (A21), clause 31 deals with interim
payment. The provision states:
“
The principal agent shall
issue an interim payment certificate every month until the issue of
the final payment certificate. The
payment certificate shall be based
on a valuation prepared within seven calendar days before the stated
date in the schedule which
may for a nil or negative amount.”
[21]
He further testified that the administration and effecting of
payments was done by the defendant
– The Eastern Cape
Department of Human Settlements - through its Kokstad offices.
Throughout the project, that office would
verify the work done and
then convey reports to the defendant’s East London head office
which would then make the payment.
The principal agent issued all the
monthly payment certificates. The principal agent had two employees
of its own on site monitoring
the works. Payments in terms of the
JBCC contract were to be made by defendant within 21 days. All the
monthly payment certificates
were paid by the defendant.
[22]
He testified that the State clauses are subject to 5.1.2 (page 144 -
(A31) “
In terms of the clauses listed hereunder, the
employer has retained its authority and has not given a mandate to
the principal agent.
The employer shall sign all documents in
relation to clauses 19.2; 20.1; 20.7; 26.2.1; 26.3.1; 29.1; 29.2;
29.4.1; 29.4.3; 29.7;
29.8; 32.1; 32.6.1; 32.6.2; up to 32.6.3;
32.1.5; and 34.3. Copies of the signed document shall be provided to
the principal agent.”
Clause 32.5 provides for contract
value adjustment.
[23]
Provision 32.5 allowed for instances “
where the contractor
has incurred expense and loss arising from a circumstance for which
provision was not required in the contract
sum and for which
reasonable compensation has not been made in terms of 32.2 and 32.12,
the contractor shall provide details of
such an expense and loss to
the principal agent in terms of 32.6.”
These include
instances of default by the employer. The principal agent had to be
timeously advised.
[24]
He stated that the document referred to herein as “the funding
agreement” and which
document he was made to sign subsequent to
the award had not been referred to in the bid invitation at the time
of advertising
and later award. The funding agreement was only
produced by the defendant after they had started to do the work and
after the JBCC
agreement had been signed.
[25]
Following the completion of the works, the principal agent wrote to
the department on 6 May 2013
to inform it of the ‘extension of
time’ claim caused by the delays in the Mount Ayliff project.
The letter refers to
‘preliminaries and general costings’
and was addressed to Mr Beja of the defendant. Mr Bradford said they
had worked
well with Mr Beja throughout the contract. The concluding
advice of the principal agent in the letter to the defendant reads:
“…
We
have examined the claim in detail and advise in terms of clause 29.7
that the client reduce the same to 80 working days as their
contract
period had been revised to the 3
rd
of March 2013 after claim number two. In accordance with such finding
we hereby advise that the date of Practical Completion be
extended to
the 3
rd
of July 2013. The contract sum shall be adjusted by R3 038 972.00
as calculated below. Time related P&G’s R9 496 789.56
divided by 250 working days = R37 987.15 per working day.
Therefore R37 987.15 x 80 days = R3 038 972 adjusted
contracted value.”
[26]
Subsequent to the claim and supporting documents being submitted to
Mr Dulani (the regional director
of human settlements) in and around
October 2014, there were delays in the settlement thereof. The
impasse remained unresolved
even after numerous back and forth
efforts between defendant and plaintiff, following which plaintiff’s
attorneys made demand
for payment on 28 January 2015. A string of
emails resulted and were exchanged between plaintiff’s
attorneys and the defendant.
Plaintiff’s attorneys received a
response from Provincial Treasury office advising that the said
office was in consultation
with the department to resolve the matter.
[27]
In February 2015 plaintiff received a telephone call from defendant’s
East London finance
department offices for a representative of the
plaintiff to go in and sign a payment certificate. Mr Bradford said
this was standard
practice before a payment was done and finally
transmitted. He went and signed the certificate of payment and
authorisation certificate
for the amount of the extension of claim of
more R
R3 038 972
. Ms Lokwe and Mr Beja were there
representing defendant and he was told by them that payment would be
made in a few days.
[28]
Payment was not made. Instead plaintiff’s attorneys received
another letter indicating
that the department was still looking into
the matter. This letter was signed by a Mr Mbiza. The matter was
taken up again by plaintiff’s
attorneys with the Provincial
Treasury and that office firmly advised that payment would be made no
later than the following Friday
27 February 2015. In the
communication the plaintiff was also informed that the department had
been advised to effect payment by
the 27 February 2015. The payment
never came through.
[29]
Cross-examined by Ms Norman for the defendant, it was put to Mr
Bradford that the invoice submitted
had made no reference to standing
time for delays. It was put to Mr Bradford that the invoice was
worded as a clam for work done
less, retention in an amount of R3 038
972.00. He explained that the certificate 32 complies with how
valuation of the works
is undertaken and that what is valued are
extensions of time, variations etc. He responded that when submitting
construction work
related invoices, there is nowhere where there is a
heading “
invoice for standing time”.
[30]
Mr Bradford confirmed that the claim was indeed for non-payment of an
‘
extension of time claim’
and monies due to
plaintiff for standing time. Counsel pointed out that nowhere in the
Summons and Declaration is the claim stated
to be for ‘standing
time’ but was instead specified as a claim for work done.
Plaintiff agreed and stated that the
annexure describes the precise
nature of the detail for which the payment is sought. Defendant’s
counsel objected to this
and put it to the witness that nowhere in
the annexure was this spelt out clearly. The detail specifies
‘
Certificate number 32, value for work executed is
R3 038 972.00’.
[31]
Ms Norman cross-examined Mr Bradford at length and covered the entire
background that had been
dealt with by Mr Bradford in so far as the
history of the commencement of the contract; the availing of site
occupation and the
nature of the stand-off between the department and
plaintiff in initially refusing to sign the funding agreement.
[32]
One lucid starting point is that defendant’s counsel in
cross-examination was emphatic
about in the defence’s view, was
that the payment for delay-claim; standing time and/or P’s and
G’s was impermissible
and fell outside of the ambit of the
principal agent to approve. The view expressed was that all the
principal agent could do in
these circumstances would be to submit
the claim but that final approval was the prerogative of the
department. The intimation
in cross-examination was clearly that the
funding agreement, as detailed in clause 6.1.6 was decisive with
regards to approval
of payment and that, what the clause contemplated
was the Head of Department – Mr Sharpley alone who could
approve such a
claim. In addition to the aforegoing, it was very
evident throughout cross-examination that the defendant was
suspicious given
the delay of a year and the manner and nature of the
narration surrounding the premise on which the claim was submitted.
Evidence
of Mr Boyd Madikizela
[33]
Mr Boyd Madikizela is employed by defendant
as its legal advisor and his functions include,
inter alia
,
providing legal opinions to the Head of Department, Mr Sharpley. He
said his work was
“…
mainly just to brief
the KPA’s, drafting contracts, legal opinions to the CEO and
HOD”.
[34]
In leading his evidence, counsel referred the witness to page 6 of
the JBCC Agreement and enquired
from the witness who within the
department signs agreements on behalf of the department and he said,
“
the appointing officer and the accounting officer as the
head of department”
.
[35]
Counsel asked the witness - (p 218 – 219 of record) –
“…
Why
it is necessary that payments that are made in terms of this project
should be made in terms of the price that has been tendered
for and
accepted and that the price cannot be adjusted, without the head of
the department sanctioning that?”. The witness
replied:
“
Thank
you. What happens is that the mandate for delivering housing
communities is obtained from section 26 of the Constitution.
That
gives the right to adequate housing within available resources. From
that section 26 the legislature created a piece of legislation
called
the Housing Act, which mandates the Minister to come up with the
housing laws and housing court on how housing delivery
will be done.
So, it is that housing court therefore that says the MEC, when
releasing the money pay instrument and this instrument
used there was
the rural housing instrument.
When the MEC is releasing that money for the housing project there
must be a funding agreement that specifies how the funds will
be
released. So, the approval of the project is done by the executive
authority who is the MEC…
So
that instrument stipulates one, firstly the budget that the Minister
must utilise under the rural housing policy and that is
called the
quantum and that quantum is an amount that specifies that each
beneficiary of a subsidy from government must get so
much and the
amount is the same for all beneficiaries and it is fixed…”
[36]
Mr Madikizela then set out numerous processes that had to do with the
defendant’s own internal
arrangements on diverse matters
surrounding beneficiaries and how they qualify for subsidies. He
testified that he drafted the
funding agreement in this matter and
had met with Mr Bradford. He denied that he had threatened Mr
Bradford to ensure that he signed
the funding agreement. He referred
to adjustments which must be made where a contract price changes.
[37]
The appointment letter was provided in September 2011. He said the
contract value and price is
fixed and cannot be adjusted midstream
and only the accounting officer could do so and approve a contract
variation exercise through
what he termed an addendum to the
contract. This precluded the payment of the final invoice submitted
since no adjustment of the
contract price had been made and could not
have been possible.
[38]
He and Mr Mbiza (department legal advisor who also testified and
confirmed his evidence) had
no capacity to do a contract value
adjustment because the Public Finance Management Act devolves this
capacity on the accounting
officer Mr Sharpley as head of the
department.
[39]
Mr Sharpley also testified and confirmed that he is the defendant
department’s accounting
officer responsible for payment
approvals in the project. He was presented a memorandum prepared on
16 October 2014 by his departmental
officials recommending payment of
R3 038 972.00 to plaintiff. He said he declined approval of
the claim on the basis
that the contract concerned did not make
provision for the stated payment.
[40]
He conceded that Mr Dlulani of his department and the principal agent
had recommended payment.
Mr Galahitiyawa also did not have authority
to pay amounts beyond R2 000 000.00. All amounts in excess
of R2 000 000.00
had to be approved by him. The principal
agent ought to have applied for an adjustment to the contract for
additional funding which
he had not done.
Evidence
of Mr Suresh Galahitiyawa
[41]
Mr Galahitiyawa said in evidence that he is Chief Director for
Project Management and Quality
Assurance and he can sign for up to
R2 500 000.00 He said the powers to approve are with the
accounting officer, Mr Sharpley.
He however admitted that he had made
recommendations to the Chief Financial Officer to pay the claim.
[42]
The reason stated why the claim was not paid by the accounting
officer was because such a claim
was not provided for in the
contract. All this, despite the fact that letters exchanged within
the department and the plaintiff
directly and through their legal
representatives as well as the provincial treasury department
endorsed approval and payment of
the claim.
Evidence
of Mr Dennis Taylor - the Principal Agent
:
[43]
The principal agent Dennis Taylor is a Quantity Surveyor and he
confirmed that although the contract
provided for the rectification
of 700 units at a total contract price of R59 417 000, those
capable of rectification amounted
to 651 units. The remainder had to
be destroyed due to these having been impermissibly built on a flood
buffer zone and were consequently
removed from the scope of the
works. Although the contract price was R59 417 000, only
R52 535 000 was paid
on the basis of payment certificates
issued for all undisputed work done. A difference of R7m remained.
[44]
He testified that despite the contract being a rectification type
contract, some of the properties
had to be built from scratch and yet
some had to be totally destroyed and not rectified. He said in his
evidence (p562) “
So it wasn’t a fault of Grinaker that
they didn’t complete the whole thing, they were removed through
negotiations with
the Department…”
[45]
He said he was the principal agent appointed to administer the
contract on behalf of the department.
During cross-examination, Mr
Mtshabe drew his attention to page 99 of the funding agreement at
‘A64’ and ‘A65’.
6.1 thereof provides as
follows:
“
6.1
The Contractor shall be paid the contract price in Clause 5.1 above
strictly in terms of the HSS progress payment system as
encapsulated
in the National Housing Code, as amended, from time to time by the
Minister of Human Settlements.
6.1.1
Payments to the Contractor shall be made in terms of milestones
actually achieved on the housing units and the
Department shall not
pay for materials inside.”
[46]
With reference to ‘milestones’, Mr Taylor said although
he could not recall with
precision, these included surface beds and
wall plates, roofs and then finishes. He was (as he put it) “not
100% sure”
that these were the only components of ‘milestones’.
[47]
He acknowledged that in paragraph 6.1.6 of the funding agreement
reads – “
A payment claimed by the Contractor becomes
valid when it has been accepted and certified by the Department.”
He was, simultaneously with this provision, referred to Clause 29 of
the JBCC agreement at ‘A29’ on page 133 -
Clause
29.2# reads –
“
The
circumstances for which the contractor is entitled to a revision of
the date of Practical Completion of which the revision of
the
Principal Agent shall adjust the contract value in terms of 32.12 are
delays to the Practical Completion caused by:
29.2.1
failure to give possession of the site to the Contractor.”
[48]
Mr Mtshabe then put it to him that the plaintiff’s claim in
this matter was for standing
time (not for work done). In answer to a
question whether he knew of any stage when the defendant had failed
to give possession
of the site to plaintiff, his answer was –
“
The client failed to give possession of the site to the
Contractor”
(P566 of record)
[49]
Mr Mtshabe emphasised that plaintiff’s claim was for standing
time. He emphasised in cross-examination
that although this was the
case, the claim was presented by the principal agent and plaintiff
and motivated as follows: –
‘
In
accordance with such findings, we hereby advise that the date for
Practical Completion be extended to the 3
rd
July 2013. The contract sum shall be adjusted by R3 038 972.00
as calculated below. Time related P&G’s is R9 496 789.00.
R.56m plus 250 working days = R 987.15 per working day. Therefore
R37 987.15 X 80 days = R3 038 972.00 adjusted
contract
value.
It
was thereafter accepted by both that it was the principal agent’s
proposal that the Practical Completion date be adjusted
by 80 days.
[50]
Mr Mtshabe questioned this basis of computing the calculation and
emphasised that the nomenclature
used (page 569 of record) was: –
“…
the
claim according to them, their case is that they are claiming for
standing time. Maybe you will say in technical words it’s
preliminaries, but the case has always been that standing time and to
that extent was delayed or refused to give them possession
as in
October 2011”.
[51]
Mr Taylor agreed with this broad supposition of how the adjustment
was intended to be implemented.
In attempting to provide a more
expansive answer to the question as to how the adjustment was to be
trenched with definitive clarity
(taking into account the JBCC read
with the funding agreement, the principal agent’s answer and
comment was the following
(p571 of record) –
“
These
documents are not always – you can’t just look at that,
you can’t just look at them and say this is how
it works. How I
would view the adjustment of the contract value is an adjustment of
preliminaries. And we didn’t at that
stage require an overall
adjustment of the contract value because we were still within the
overall contract value. We just needed
an adjustment of the
preliminaries which didn’t, because the other houses had been
removed, now we didn’t go over the
R59m. So, to add another R3m
to the contract value didn’t make sense at the time. It still
didn’t make sense to me.”
[52]
At p577 of the record - line 15, - Mr Taylor acknowledged that he had
no authority to adjust
the agreed contract value to accommodate a
recommended claim, but (I quote) –
“…
what
I can do is I make a recommendation to the Department for the
approval of the same in terms of the JBCC Certificate”.
He
agreed with Mr Mtshabe that in certificate 32, the contested payment
was for those reasons reflected thereon as being ‘
for work
done on the above project’.
[53]
He explained clearly that in extended engagements with Mr Bradford
for plaintiff, Mr Beja for
the defendant and other officials of the
defendant, they would put through this recommendation based on
additional preliminaries.
He admitted that the recommendation still
required approval by the department, but that prior to that
happening, they all knew
and were told that “
it would not
move unless (we) certified it as a Payment Certificate…knowing
it still had to be approved, so we never had
anything in the
Certificate other than the P & G’s”.
[54]
He said this whole process was done by him to meet the financial
consequence of the delays occasioned
to the plaintiff. Following this
mutually agreed path and once the submission was made, the department
appointed people to take
the recommendation through the process for
approval.
[55]
When it was suggested to him that work had not been done his answer
was –
“
The
work, if it was approved, if this Certificate and recommendation is
approved by the Department, then the work is done. If it’s
not
approved, then the work is not done because the value created –
it’s difficult, I understand that when you’re
not
involved in the Construction Industry and the Industry – it’s
difficult to differentiate between this panelling
that we’re
seeing over here and preliminaries. The one creates something that
you can see...so understand that there’s
a work done scenario
and then there’s a preliminaries element that is also running
there at the same time. And it’s
not a tangible thing. This
document, the whole Department set-up make it easy like in a normal
contract, in a normal JBCC contract
where we’re running a
project with the – not Human Settlements, where there’s
no milestones and all of that –
this process is a lot easier
because you just certify the amounts – once it’s been
approved you can certify and it
goes off because the work has been
done. The time has been expended on site.”
[56]
He goes on to say -
“
But
on this one you’ve got to try and put it into the milestones
and remembering that they’ve already lost preliminaries
because
the project value has got smaller, and in those milestones is already
preliminaries which they are not asking for back.
Under normal
circumstances they would actually get those preliminaries back
because the contract period hasn’t got smaller,
they’re
still going to be there for the same amount of time….”
[57]
When asked by Mr Mtshabe what he had based the payment certificate
on, he explained –
“
I
based my Payment Certificates on the value of the recommended
preliminaries that were waiting for approval.”
(page 582 of record).
[58]
He was again asked where these recommended preliminaries were since
they were not annexed, he
pointed out that his prepared
recommendations had been annexed and consisted in a breakdown;
schedule; a recommendation for additional
preliminaries and so on …
to the back of the certificate. Counsel for Plaintiff assisted and
pointed out that these were
reflected in Exhibit ‘A10’
and ‘A11’. The witness throughout continued to refer to
the following - “
The payment related to the preliminaries
included in his recommendation.”
[59]
It was pointed out that the final rejection of the head of department
was phrased as follows:
“
Not
approved.
The quantum does not have
an allocation for standing time.
If the QS and the Contractor considered the Municipality as liable,
then they should claim from the Municipality. Legal must respond.”
[60]
When he was asked to expand on what constituted ‘
preliminaries
and generals’
in the contract he said these relate ‘
to
various aspects’
of the costs of construction such as
cement, bricks and more preliminaries and generals. He agreed that
these are an integral part
of value on site including management and
staff and everything that goes to creating a house is also part of an
essential creation
of value. He agreed in cross-examination that
during the 80 days accounted reflected on the payment certificate, in
order to execute
the works by plaintiff, preliminaries and generals
were being incurred. He said these occur throughout the delay and
extended period.
[61]
He said the contractual obligation was on defendant to give ‘vacant
occupation’ of
the site on 14 October 2011 in line with a
pre-determined scheme of works or plan for how the works were to be
conducted. If the
properties were occupied and no arrangement for
their being vacated, then there cannot be possession of the site.
[62]
Mr Taylor said in the 80 days without work being done these were
incurred from the 14 October
2011 when the obligation to give
possession of the site arose. Defendant was informed from the very
onset in a letter by Buckland
in which he wrote-
“
We
advise you of delays due to beneficiaries not vacating their old
houses thus preventing us from demolishing the houses which
form part
of our contract.”
[63]
These delays are also recorded as required by the JBCC contract in
detail in site minutes of
all the parties including the witnesses who
testified for defendant. This was also accompanied by a Bill of
Quantities prepared
(at the time) by plaintiff and is exhibit “A”.
[64]
The Bill of Quantities was prepared by his office and in
rectification projects where there are
uncertainties, this Bill of
Quantities is susceptible to change due to inherent uncertainties
about the condition of the houses
and what is necessary to restore
them to sound superstructures.
[65]
He said there are always changes to a rectification project and when
the parties in this agreement
entered into the contract, it was
anticipated there would always be adjustments ‘up and down’
occurring, something
quite usual in these rectification contracts
given the unavoidable uncertainties. He referred to administering
rectification contracts
as a difficult exercise, in comparison to
green field sites and virgin projects.
[66]
He went on to say most of what will be needed or required will always
be subject to ongoing change
and negotiation. When on site you (at
times) find other inputs and work changes, things are not static. In
your Bill of Quantities,
you may have provided for 1000 cubic meters
when you actually need 1500.
[67]
In concluding this contract, both parties appreciated was the
contract value but it was subject
to adjustment, it had to be that
way. The contract value was not written in stone.
[68]
“
There’s three sets of preliminaries, fixed; value and
time. (a) fixed is not adjustable at all; (b) value preliminaries
that
increase if contract goes over the budgeted figure; (c) time
preliminaries vary in terms of time spent on site – they are
adjusted if you are there for – if the contract period was
initially 9 months and it now becomes 10 months and it was not
a
fault of the contractor or the various clauses, then they are
entitled to adjustment of the contract value. In terms of the P&G’s
they are entitled to claim that with costs. They are entitled to
claim the time related preliminaries only and they are entitled
to
claim for that. Did I make sense or not” (page 594)
[69]
‘Site establishment’ - ‘Value preliminaries have to
do with the actual issues
relating to the work’, ‘time
related are other management and other incurred costs in keeping the
contract going, running
the contract so to speak.’
Observations:
The
argument that authority to sign off payment rests on the head of
department:
[70]
The argument advanced by the defendant is that clause 6.1.6 and 5.1.2
of the funding agreement
precludes approval of payment of the invoice
by the principal agent and that only the head of department, Mr
Sharpley was permitted
to do so. Clause 6.1.6 of the agreement
provides –
“
A
payment claim by a Contractor becomes a valid claim when
it
has been accepted and certified by the Department.”
(my underlining).
[71]
It was argued by Ms Norman that this is so because Mr Sharpley is the
accounting officer within
the department. In addition, it was argued
that this was evident from the fact that he signed the agreement for
and on behalf of
the department.
[72]
The view advanced by the defendant is premised on its own
interpretation of the contractual provision
relied upon and this
Court has a duty to consider the rules relating to the interpretation
of contracts. The fundamental consideration
in determining the terms
of a written contract or the interpretation of wording in a clause is
to discern the intention of the
parties from the words used in the
context of the document as a whole. This exercise must take into
account the factual matrix
surrounding the conclusion of the
agreement and its purpose or (where relevant) the mischief it was
intended to address. See (
KPMG Chartered Accountants (SA) v
Securefin Ltd and Another
2009 (4) SA 399
(SCA) at para 39 and
Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd
2016(1) SA
518 (SCA) at paras 27, 28, 30 and 35).
[73]
Since at least
Swart en 'n Ander v Cape Fabrix (Pty) Ltd
1979(1)
SA 195 (A) at 202C and
List v Jungers
1979 (3) SA 106
(A) at
118G-H the Supreme Court of Appeal and its predecessor have stated
that one considers the contentious words by having regard
to their
context in relation to the contract as a whole and by taking into
account the nature and purpose of the contract. While
there have been
some hiccups along the way, in
Natal Joint Municipal Pension Fund
v Endumeni Municipality
2012 (4) SA 593
(SCA) para 18 Wallis JA
said:
‘
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must
be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more than one
meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not subjective.
A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose
of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between
interpretation and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact
made. The 'inevitable
point of departure is the language of the provision itself, read in
context and having regard to the purpose
of the provision and the
background to the preparation and production of the document.’
[74]
In Novartis South africa (Pty) Ltd v Maphil Trading (Pty)
Ltd
Neutral Citation: Novartis v Maphil (20229/2014)
[2015] ZASCA 111
(3
September 2015), Lewis JA stated the following:
“…
The
passage cited from the judgment of Wallis JA in
Endumeni
summarizes the state of the law as it was in 2012. This court did not
change the law, and it certainly did not introduce an objective
approach in the sense argued by Novartis, which was to have regard
only to the words on the paper. That much was made clear in
a
subsequent judgment of Wallis JA in
Bothma-Botha
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA), paras 10 to 12 and in
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
[2013] ZASCA 76
;
2013 (5) SA 1
(SCA) paras 24 and 25. A court must
examine all the facts - the context - in order to determine what the
parties intended. And
it must do that whether or not the words of the
contract are ambiguous or lack clarity. Words without context mean
nothing.
[75]
In the present matter, nowhere in its plea does the defendant aver
that the approval had been
declined for lack of approval by the ‘head
of department’. Moreover, in its plea, defendant does not deny
that the
payment certificate was issued by the principal agent as the
department’s representative and authorised agent. The defendant
warranted at the outset that the principal agent had the authority to
bind the defendant and defendant must have anticipated that
plaintiff
would act on that representation.
[76]
The funding agreement was drawn up by the department and no specific
stipulation is provided
for in either the definition clause nor in
the body of the funding agreement to this effect. I have also not
been referred to any
other decision of like nature despite the fact
the department no doubt has undertaken numerous such rectification
work on many
defectively built projects throughout the country. Put
differently, there is no explicit reference that payments could only
be
approved solely by the head of department.
[77]
There were numerous other prior claims submitted by the contractor
for payment under the agreement.
These were and paid by the defendant
and in none of these was the approval function reserved for the head
of department.
[78]
Although this issue was advanced quite robustly throughout the trial
both in cross-examination
and in argument, I was not presented with
demonstrable evidence that this has ordinarily been the case in
rectification projects.
What the Court was presented with is that
various line managers within the department signed off on the
disputed payment and it
will be evident in this judgment that
effectively everyone did so, save for the head of department.
Treasury, the overall guardian
of the public purse and the enforcer
of all procurement compliance with oversight over all national and
provincial departments
and state-owned entities saw no impediment and
anticipated the claim being met.
[79]
Treasury remitted the letter after conducting internal investigations
around the reasons for
the delay and communicated with all the
housing department officials and was satisfied there were no
impediments to effecting payment.
If the regulations required that
only the head of department must sign each such payment in matters of
this nature Treasury was
best placed to raise that from the onset.
That never took place.
Claim
for Standing Time or Preliminaries and Generals:
[80]
Upon delay occurring in terms of Clause 29.2, inter alia, for the
failure to give possession
of the site to the contractor, the
contractor shall give the principal agent notice of such circumstance
and within twenty days
notify the principal agent of its intention to
submit a claim. Clause 29.2 and Clause 5.1.2 provide that where the
employer is
in default of giving possession of the site to the
contractor, the contractor shall be entitled to a revision of the
date of practical
completion and adjustment of contract value in
terms of Clause 32.12 and the principal agent shall adjust the
contract value. The
preliminaries and generals in the Bill of
Quantities shall be paid and adjusted as per selected alternatives in
Schedule. (my underlining)
[81]
Christie’s ‘The Law of Contract in South Africa’ -
6
th
edition - at (page 366) points out that: “
The
standard clause in building or engineering contracts making the
architect’s or engineer’s final certificate conclusive
evidence of the sufficiency and value of the works is not contrary to
public policy. Nor is it contrary to public policy for the
contractor
to enforce such a certificate that is known to be inaccurate, as the
owner or employer may have a remedy against his
architect or engineer
whose duty it was to protect his interests.”
– See
also Ocean Diners (Pty) Ltd v Golden Hill Construction CC
[1993] ZASCA 41
;
1993 (3) SA
331
(A) 342E-343D.
[82]
Relying on the aforegoing decision in Harlequin Duck Properties 204
(Pty) Ltd v Fieldgate
2006 (3) SA 456
(C) 465F, Davis J went on to
state that: “
In short, it does not appear that the law as
cited by Mr Oosthuizen supports the contention that the particular
architect’s
clause is invalid. Secondly, to the extent that it
is valid, the test is whether the architect applied himself properly
to the
determination. Nothing on the facts which were raised by the
respondents indicates to the contrary.”
[83]
In so far as the basis for the claim, the defendant clearly viewed
the payment certificate submitted
with suspicion. In
cross-examination, Ms Norman succinctly put this in argument as
follows:
“…
That
is not how payment certificates are put in. In his evidence
(principal agent) payment certificates, all of them, all of those
that have been approved and paid were for milestones. All of them. So
that is his evidence and then this one in particular, then
he says, I
would like to take M’Lord to that particular page where he says
they decided, they wanted to put this thing through
the system so
that it can get paid. Now that is where the contention of the
invalidity of the payment certificate about the invoice
is premised,
because you issue a payment certificate, you value the work, you
issue a payment certificate after you value the work.
You don’t
wait a year later and you come up with a plan as to how do you put
this thing through the system to get it approved
and then you issue a
payment certificate. That is the nub of the criticism of the payment
certificate and it doesn’t mean
that because he is implementing
agent that criticism cannot be levelled and also because he had no
authority to adjust the value…”
[84]
In my view it didn’t matter whether the figure computed as
Standing Time or Preliminaries
and Generals or other technical
description, it was clear that the intention was to accommodate
largely and materially for the
delays which occurred, not due to
plaintiff’s fault, following the difficulties acknowledged by
the defendant’s area
managers to have occurred beyond the
control of the plaintiff and as a result of the failure to provide
meaningful and functional
access to the site. Mr Taylor alluded at
length in his evidence with regards the basis he employed to issue
the payment certificate
for the final certificate. The principal
agent had the full authority to issue the certificate.
[85]
In addition, the defendant did not demonstrate a necessity that the
contract price would be exceeded
by the approval of the claim. There
existed sufficient funding to meet the plaintiff’s claim
without the necessity to adjust
the contract price as testified to by
the department officials Mr Mbiza; Galaharasity and Sharpley. Mr
Taylor made the approval
in circumstances where the budget had not
been depleted.
Overriding
authority of the principal agent:
[86]
The Principal Agent represents the employer, is not a party to the
JBCC agreement and is a key
independent professional role player. His
or her role contributes to the strength or weakness of the entire
building project and
he/she manages the services of all consultants
during project implementation ensuring the best interests also of the
employer.
The principal agent issues instructions on behalf of the
employer (presumably in good faith) and binds the employer.
[87]
The authority of the principal agent to authorise payment and bind
his principal is not in dispute.
This authority extends to approval
of the payments constituting what is termed in the industry ‘Standing
Time’. The
JBCC Agreement provides that the defendant herein as
employer cannot dispute or refuse to honour the obligation to pay an
interim
certificate issued by its principal agent. That obligation
resulting from a payment certificate creates a separate obligation
and
cause of action, independent of the contract.
Liquid
Claim:
[89]
The plaintiff’s claim is for the payment of a sum of money due
and evidenced in a certificate
issued by the principal agent.
Defendant is obliged to pay certificates for payment issued by
principal agent and such a payment
certificate is a liquid document.
See – Randcon (Natal) Ltd v Florida Twin Estates) Pty) Ltd
1973(4) SA 181 (D) at 185 D.
[90]
In Joob Joob Investments (Pty) Ltd v Stocks Mavundla ZEK Joint
Venture 2009(5) SA 1 (SCA) at
para [27]:
“
Gorven
AJ
pointed out,
with reference to
Randcon
(Natal) (Pty) Ltd v Florida Twin Estates Ltd 1973(4) SA 181 (D) at
183 H – 184 H
that
a final payment certificate is treated as a liquid document since it
is issued by the employer’s agent, with the consequence
that
the employer is in the same position as if it would have been if it
had itself signed an acknowledgement of debt in favour
of the
contractor. Relying further on the
Randcon
case (supra) at
186G – 188G, the learned Judge held that similar reasoning
applied to interim certificates. The certificate
thus embodies an
obligation on the part of the employer to pay the amount contained
therein and it gives rise to a new cause of
action subject to the
terms of the contract. It is regarded as the equivalent of cash.”
[91]
Clause 29.2 and Clause 5.1.2 provide that where Defendant is in
default of giving possession
of the site to plaintiff shall be
entitled to a revision of the date of practical completion and
adjustment of contract value in
terms of clause 32.12 the principal
agent
shall
adjust the contract value.
[92]
The preliminaries amount in the Bill of Quantities shall be paid and
adjusted as per selected
alternatives in Schedule. Upon delay
occurring in terms of Clause 29.2, inter alia, for the failure to
give possession of the site
to the Plaintiff then the Plaintiff shall
give the principal agent notice of such circumstance and, within
twenty days, notify
the principal agent of its intention to submit a
claim.
[93]
I am unable to find that only the head of the department, Mr Sharpley
could approve the payments
to the contractors. The funding agreement
only requires that the department must approve and does not prescribe
that it be the
‘head of department’.
[94]
The order I issue is the following:
[94.1]
The claim succeeds and defendant is to pay to
the plaintiff the sum
of R3 038 972.00 together with interest calculated at the
legal rate of interest from 13 November
2014 to date of payment.
[94.2]
Defendant is to pay the costs herein on a party
and party scale.
MAGEZA
AJ
Heard:
07 February 2018
Delivered:
05 June 2018
For
Plaintiff:
Adv D.H. De La Harpe SC
Plaintiff’s
Attorneys:
Cooper Conroy Bell & Richards
4 Epsom Road
Stirling
East London
(Ref: Mr GS
Bell/jb/BG7277)
Telefax No. (043)
735 4275
Email:
gsb-ccbr@law.co.za
For
Defendant:
Adv T.V. Norman SC
With
-
Adv N.R. Mtshabe
Defendant’s
Attorneys:
STATE ATTORNEY
17 Fleet Street
Old Spoornet
Building
EAST LONDON
(Ref: Mr Ngwenya)