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[2016] ZAFSHC 76
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Thabula Trade and Invest 3 (Pty) Ltd v Ruwacon (Pty) Ltd and Others (866/2016) [2016] ZAFSHC 76 (2 June 2016)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 866/2016
In
the matter between:
THABULA
TRADE & INVEST 3 (PTY)
LTD
Applicant
and
RUWACON
(PTY) LTD
1
st
Respondent
THE
MEC: FREE STATE PROVINCIAL
GOVERNMENT
DEPARTMENT OF HUMAN
SETTLEMENTS
2
nd
Respondent
JUDGMENT
BY:
ZIETSMAN,
AJ
HEARD
ON:
26 MAY
2016
DELIVERED
ON:
2 JUNE
2016
[1]
The applicant in this matter represented by Mr Grobler, applies for
payment of the amount of R1 085 655.07 from the first respondent
together with interest thereon at the rate of 9,5% per year
a
tempore morae
,
on the Hobhouse project from 5 November 2015 until date of payment
and on the Ladybrand project from 26 December 2015 until date
of
payment. The applicant also move for an order of costs against
the first respondent.
[2]
The applicant only applies in the alternative from second respondent
on the basis that if it being found that the second respondent
has
failed to effect payment of any retention monies withheld and due to
the first respondent on the projects called Hobhouse project
and
Ladybrand project, that the second respondent be ordered to effect
payment of the amounts as in the first paragraph of the
notice of
motion to first respondent, and in turn that payment be effected to
applicant on that basis. Second respondent
did not oppose the
application.
[3]
The legal relief sought is based upon a building project in terms of
which the second respondent entered into a building contract
on two
projects, being the Hobhouse project and the Ladybrand project, with
the first respondent as main contractor to effect the
construction of
the various houses referred to in the main contract. In turn the
first respondent contracted with the applicant
as subcontractor to
effect the building projects on its behalf.
[4]
Although the main contract is incorporated in the two separate
sub-contracts, the two sub-contracts consist of two separate
written
agreements with its own terms as the agreements entered into between
the first respondent and the applicant.
[5]
The main dispute between the parties relates to the interpretation of
the retention clause in both agreements, to which I will
refer to
herein beneath, as well as the question whether the applicant is
entitled to approach a court for legal relief in the
light of a
clause in the two separate sub-contractor agreements under the
heading dispute resolution, from which it is argued on
behalf of the
respondent by way of a point in
limine
,
that the applicant was obliged to utilise the dispute resolution
procedure referred to in clause 14 of the different agreements,
which
determines amongst others that should any dispute between the
contractor and sub-contractor arise out of the provisions of
the
subcontract or the execution of the subcontract works,
“…
either party may,
one week after having advised the other party of his intention to do
so, refer the dispute to an adjudicator.”
Mr
Cilliers on behalf of the first respondent argued that the dispute
resolution procedure is obligatory, in so far as clause 14.2
of the
agreement refers to the fact that the adjudicator’s opinion as
to the fair resolution of the dispute shall be final
and binding on
both parties.
[6]
Mr Grobler argued that clause 14.1 makes it clear that either party
“may” and the word “must” is not
used.
He further argued that clause 14.2 can only be applicable in the
event that the parties chose to utilise the dispute
resolution
procedure. I am in agreement with Mr Grobler on this issue and
the point
in
limine
therefore has no merit.
[7]
As refer to herein above, the main bone of contention is the
interpretation of the retention clause which is clause 17 of each
of
the different subcontracts. On the Ladybrand contract the
clause reads as follows:
“
The
contractor shall retain 10% of all payments due to the
Subcontractor. The amounts thus retained shall remain in
retention
until the retention period provided for the Contract shall
have lapsed and all retention work shall have been done to the
satisfaction
of the engineer on site.”
[8]
On the Hobhouse project the specific clause 17 reads as follows:
“
The
Contractor shall retain 10% of all payments due to the
Subcontractor. The amounts thus retained shall remain in
retention
until the retention period provided for the Contract shall
have lapsed and all retention work shall have been done to the
satisfaction
of the engineer on site. 5% of the retention held
will be released on final completion and 5% of the retention will be
released
six months after final completion.”
[9]
It is common cause that the engineers on the project was Fresh
Harvest Consulting Engineers and Project Managers, and it was
common
cause between the parties that such engineers filed a close-out
report on both projects, with the following conclusion:
“•
Confirmation that
the project has been completed as per scope and budget, for further
clarity kindly contact the consultants (Fresh
Harvest Consulting).
·
Based
on the agreement between the department and the contractor we
recommend the department to release the final 2,5%, (two comma
five
present) retention as the contractor has achieved completion.”
Just
beneath the aforesaid conclusion a reference is made to clause 16.2
and 16.2.1.2.1, obviously referring to the main contract
between the
department and Ruwacon.
[10]
Both the close-out reports have been signed by one Ronnie, reviewed
by one Bongani and approved by one Phuti. On the
Hobhouse
close-out report, it seems that the date of the approval from the
engineer was 5 October 2015 whilst on the Ladybrand
project the date
appears to be 27
th
November 2015.
[11]
It was furthermore common cause between the parties that the
reference to clause 16.2.1.2.1 in both of these close-out reports
should have been clause 16.2.1.2.2 of the main contract. The
difference being that clause 16.2.1.2.1 deals with practical
completion, whilst 16.2.1.2.2 deals with final completion, with
reference to the main contract.
[12]
It needs to be mentioned that the retention clause in the main
contract is taken up in clause 16.2 which reads as follows:
“
16.2
RETENTION
16.2.1
In the event, a contractor is awarded less than 500 (five hundred)
housing units, the following
shall apply –
16.2.1.1 The
department shall withhold from the contractor, 5% (five present) of
all payments made to the
contractor before practical completion as
security to the department for completion of project;
16.2.1.2 The
department shall without any interest release withheld retention as
follows –
16.2.1.2.1 2,5% (two
comma five present) on achievement of practical completion; and
16.2.1.2.2
2,5% (two comma five present) 6 (six) months from date of achievement
of final completion.”
From
the wording of both clauses 17 of the subcontracts, it is made clear
that the retention money may be withheld pending or until
the
retention period provided for the contract shall have lapsed and/or
retention work shall have been done to the satisfaction
of the
engineer on site. Both parties were in agreement that all
retention work has been done to the satisfaction of the
engineer on
site on the basis of the close-out reports filed by the engineer.
Mr Cilliers however argued that notwithstanding
the close-out reports
from the engineer there was still outstanding retention work and if
the clause is read as a whole, it must
be interpreted that the
retention period provided for in the contract must also have lapsed
before the retention monies could be
paid out.
[13]
From the subcontracts, and even the main contract no provision is
made for a definition or a description of what the “retention
period provided for the contract” would mean. According
to Mr Cilliers, the only possible explanation for this, is
that the
contract period referred to herein must obviously be explained with
reference to the main contract and more specifically
with reference
to the retention period which must be deduced from clause 16.2.1.2.2.
which says that the balance of the retention
money held back by the
department, being 2.5%, shall be paid out six months from date of
achievement of final completion.
His argument is therefore that
the retention period must be extended to such six months after the
date of achievement of final
completion, even on the interpretation
that final completion was indeed reached in accordance with the
close-out reports on 5 October
2015 and 27 November 2015 respectively
on the two projects. According to him the application was
therefore prematurely issued
because of the fact that the six months
after achievement of final completion have not lapsed before the
application was issued
during February 2016.
[14]
Contrary to the aforsaid argument on behalf of the first respondent
Mr Grobler argued that the court must interpret clause
17 of the two
subcontracts on the basis that the defects liability period is in
fact the period during which the subcontractor
should finalise or fix
problems and other retention work, and that the defects liability
period, is indeed the period between practical
completion and final
completion. He argued that on final completion, the engineer
certifies that the contract has achieved
completion, and that the
final retention of 2,5% should be released. (with reference to the
main contract)
[15]
It is trite law in the interpretation of a contract that the court
should determine the intention of the parties thereto by
interpreting
the words with ordinary grammatical meaning, but also in the context
of the wording used. The context includes
not only such clause
wherein the specific wording is used but the context of the contract
as a whole. See
Swart
v Cape Fabrix (Pty) Ltd
1979 (1) SA 195
(A) at 202C;
List
v Jungers
1979 (2) SA 106
(A) at 118.
[16]
In my view and in accordance with the usual interpretation to
determine the intention of the parties from the wording and in
the
context of the contract of clauses 17 respectively the retention
period provided for the contract can only be interpreted to
be a
period ending at the date of final completion of the contract.
It is for the same reason that the engineer certifies
final
completion and recommends the pay-out of the last retention monies
(with reference to the main contract). It is clear
from the
close-out reports, that such reports forms a certification by the
engineer of his satisfaction that all retention work
have been done,
which in turn means that the retention period provided for in the
contract shall have lapsed at such a certification
on final
completion. The fact that the main contract provides for a
payment of outstanding 2,5% retention monies six months
after date of
final completion is only an extension of the payment of the balance
of the retention money which was agreed between
the department and
Ruwacon and cannot be ascribed to a further defects liability period
during which further retention work must
be done by the
subcontractor, if the specific clause 17 of the subcontract is read.
[17]
The further argument raised by Mr Cilliers, was that the first
respondent cannot be compelled to pay out retention monies to
the
subcontractors if the first respondent itself did not receive such
retention monies from the employer, being the department.
For
this argument he referred to 13.1.1 of the different subcontracts
which reads as follows:
“
13.1.1
The subcontractor shall, at intervals of one month, determine the
value of subcontract services carried
out in terms of the provisions
of this agreement during the month to the end of the preceding month
and shall advise the contractor,
not later than the end of the month
during which the valuation is undertaken, of the details of the
valuation which said valuation
shall be handed to the project
Engineer for certification. The contractor shall, subject to
such retentions as may be provided
for in the Contract, pay the
subcontractor the amount of the valuation thus certified at the end
of the month following the month
of certification on condition that
the contractor has received payment of the latter’s certificate
for the before mentioned
subcontract services.”
[18]
The argument was that there was a prerequisite of payment of
retention monies from the department to Ruwacon, before Ruwacon
could
be compelled to pay such retention monies to the subcontractor.
In my view clause 13.1.1 of the subcontracts must be
interpreted on
the basis that the subcontractor is entitled to payment or interim
payments at certain intervals pending the valuation
of the
subcontract services carried out for a certain interval, and shall
such interval or interim payments be made to the subcontractor
(subject to such retentions as may be provided for in contract) on
condition that Ruwacon has received such interim payments from
the
department upon such valuations as certified. (own brackets)
[19]
It therefore means that the repayment of retention monies to the
subcontractor is not dependent on receipt by Ruwacon of the
retention
monies held back by the department. The clause specifically
deals with interim payments.
[20]
It must be mentioned that there is a difference between the two
retention clauses on the two specific projects, being the Hobhouse
project and the Ladybrand project. On the Hobhouse project it
is determined that 5% of the retention money must be paid out
to the
subcontractor upon final completion, and the other 5% six months
thereafter. In the Ladybrand subcontract, nothing
is determined
in this regard. In other words on the Ladybrand project, it is
clear that the intention of the parties was
that the retention money
would be paid out on date of final completion.
[21]
It is furthermore clear that the application was issued during
February 2016, and that the second six months since final completion
on the Hobhouse project, would only have lapsed on 5 April 2016.
The applicant would therefore not be entitled to at least
5% of the
retention money held back by Ruwacon on the Hobhouse project, when
the application was issued. I took this point
up with counsel
for both applicant and first respondent, and was assured that it was
common cause between them that the amount
claimed by the applicant in
the notice of motion does not include the balance of 5% which only
became due and payable during April
2016.
[22]
The amount claimed in the notice of motion therefore only comprises
of 5% of the retention money held back on the Hobhouse
project and
10% of retention money held back on the Ladybrand project.
[23]
It must be mentioned that Ruwacon is known throughout the Republic of
South Africa as a respected building company, and that
they were
clearly not satisfied with the finalisation of the retention work by
the applicant. On probabilities the retention
work have not
been properly done, which fact was confirmed by the engineer through
a further snag list which he provided to the
applicant during the
beginning 2016. If the retention work was not done properly as
at 5 October 2015 and 27 November 2015
respectively, the engineers
must be blamed for certifying their satisfaction of the retention
work done on the dates.
[24]
I am satisfied in the circumstances that the engineers on the project
certified final completion on respectively 5 October
2015 and 27
November 2015, and that such engineer was satisfied with all
retention work been done. Although it might appear
that even
the engineer after such completion dates and after such certification
had certain reservations as did Ruwacon about further
retention work
that needed attention, the parties are in my view bound by the
respective clauses 17 of the subcontracts read with
the close-out
reports from the site engineer confirming his satisfaction as at 5
October 2015 and 27 November 2015 respectively
on the Hobhouse and
Ladybrand projects.
[25]
I am therefore of the view that the applicant is entitled to payment
of such retention monies and I therefore make the following
order:
1.
The
first respondent is ordered to pay applicant the amount of
R1 085 655,07;
2.
The
first respondent is ordered to pay interest on the aforesaid amount
calculated at 9,5% per year
a
tempore morae
as
follows:
2.1
On
the Hobhouse project as from 5 November 2015 until date of payment;
2.2
On
the Ladybrand project as from 27 December 2015 until date of payment.
3.
The
first respondent is ordered to pay costs of the application.
_________________
P.
ZIETSMAN,
AJ
On
behalf of the applicant: Adv. S.
Grobler
Instructed
by:
Peyper
Attorneys
BLOEMFONTEIN
On
behalf of the first
respondent:
Adv. H. J. Cilliers
Instructed
by:
Phatshoane
Henney Attorneys
BLOEMFONTEIN
/eb