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[2012] ZAKZPHC 54
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Inkunzi Civils CC v Greater Kokstad Municipality (11800/07) [2012] ZAKZPHC 54 (28 August 2012)
In
the KwaZulu-Natal High Court, Pietermaritzburg
Republic
of South Africa
Case
No :11800/07
In
the matter between :
Inkunzi
Civils CC
..............................................................................................
Plaintiff
and
The
Greater Kokstad Municipality
............................................................
Respondent
Judgment
Lopes J
[1] The plaintiff in this matter is
Inkunzi Civils CC. It carries on business as a civil engineering
contractor. During 2004 it
tendered for, and was awarded, contract
number 1179 by the Greater Kokstad Municipality, the defendant in
this action. The contract
was for the construction and rehabilitation
of certain roads in the Greater Kokstad area. It is common cause that
the plaintiff
performed its obligations in terms of the contract, but
the defendant, in breach of the terms thereof, failed to make timeous
payment
in respect of certain payment certificates certified by the
contract engineer Mark Eyan Ducasse (‘Ducasse’). As a
result
of the defendant’s breach of the contractual conditions,
the plaintiff eventually cancelled the contract.
[2] In a separate action, the
plaintiff sued for the payment of amounts due in terms of the payment
certificates. In addition, it
instituted this action for damages
arising as a result of the defendant’s breach of contract and
the consequent cancellation
thereof. The plaintiff sued under three
heads of damages, two of which have been settled between the parties.
The remaining claim
for damages is for the costs of labour and plant
standing time. It is the only claim which I am to consider.
[3] The plaintiff led the evidence of
three witnesses. The first of them was Ducasse who testified that he
was a qualified civil
engineering technologist and was appointed by
the defendant as the contract engineer and agent of the defendant.
His function was
to assess the need for the work done, motivate
improvements, implement the designs for the roads and put the
contract out to tender.
Thereafter he was to adjudicate the tenders,
and monitor and conduct site supervision of the contract and to sign
payment certificates.
[4] It was clear from the evidence
given by Ducasse that the breakdown in the contractual relationship
between the parties was solely
attributable to the defendant’s
failure to pay amounts due to the plaintiff as and when they fell
due. Ducasse made every
effort to persuade the defendant to honour
its obligations. Various spurious objections to the work done by the
plaintiff were
raised by one Thubane, the then municipal manager.
Those objections had no merit, and eventually out of desperation the
plaintiff
cancelled the contract.
[5] Ducasse’s evidence was clear
that the plaintiff had made every effort to keep the contract alive
and was initially prepared
in the event that it was paid, to
reinstate and complete the contract. However, payments were not
forthcoming from the defendant.
Both Ducasse and a representative of
the defendant, V Chetty, the technical head of the municipality,
understood that the job would
have to be completed eventually and
that to hire another contractor to do so would be an expensive
exercise. They accordingly persuaded
the plaintiff not to
de-establish the site and abandon the works. Promises of payment
induced the plaintiff not to abandon the
site. These promises,
however, were not kept.
[6] The plaintiff’s claim for
the standing time of plant and labour was calculated from the date of
cancellation of the contract
– the 2
nd
February
2005, to the 2
nd
May 2005 – a period of three
months. Indeed, the evidence of Ducasse was that as much as six
months later the problems had
still not been resolved.
[7] Ducasse testified that he had
perused the plaintiff’s claim and regarded it as reasonable in
all respects. He also recorded
that the plaintiff had undertaken to
reduce its initial claim, then estimated at R500 000 to R130 000 in
the event that the defendant
paid the amounts outstanding. However it
did not, and that proposal fell away.
[8] In cross-examination by Mr
Duminy
for the defendant, Ducasse emphasised that the defendant wanted
to reinstate the contract and induced the plaintiff to stay on site
by those entreaties.
[9] During the first few months after
cancellation, the plaintiff had carried out certain further work for
the defendant on the
side drains in Dower Street in order to prevent
rain damage occurring. Ducasse told the court that although he did
not know from
where the plaintiff’s plant had been sourced, he
knew which plant had been used. Ducasse was of the view that the
original
claim of some R486 000 was reasonable in all respects.
[10] The second witness for the
plaintiff was Grant Michael Buchanan (‘Buchanan’) a civil
engineering contractor of
20 years experience who was one of three
members of the plaintiff. He was also the sole member of Bladecon CC.
For the performance
of the plaintiff’s contract, Buchanan
procured that Bladecon CC supplied the plant and labour. In addition
he also allowed
certain plant which he owned in his own capacity to
be used by the plaintiff. He made it clear that Bladecon CC did not
invoice
the plaintiff for the plant and equipment provided because
that was part of what Buchanan ‘brought to the table’ as
he put it. He told the court that this was the biggest contract they
had done and that the plaintiff had been brought to its knees
because
of the non-payment by the defendant. Ultimately the plaintiff had had
no choice but to cancel the contract.
[11] Buchanan testified that for weeks
after the cancellation of the contract they believed they would be
paid and would be asked
to complete the contract by the defendant.
The plaintiff’s representatives were very keen that the job be
seen as successful.
They regarded this as important in the
development of the plaintiff as a civil contractor. He relied on the
assurances of Chetty
and Ducasse that the problem would be resolved.
[12] Throughout the period of the
contract the plaintiff gave plant and labour reports to the
defendant. The plaintiff had ultimately
been prepared to compromise
its claim in the event they were paid on the payments certificates
and allowed to complete the contract,
but this did not happen.
[13] Although the plaintiff’s
plant and equipment had stood for more than three months, Buchanan
had reluctantly agreed to
be bound by a three month period because he
was advised by one Brian Storey, a contractual claims consultant,
that that was a reasonable
period and normal in the industry. A
reduction of 28% had been applied to the computation of standing time
for plant and equipment
to allow for the fact that the equipment was
not being used.
[14] With regard to the labour
standing time Buchanan said that the employees were paid by the
plaintiff’s employee one Kerry
based on the times that they
were on site. In answer to questions by Mr
Duminy
Buchanan
admitted that the salaries of the labourers were the responsibility
of Bladecon CC and that they were employed by Bladecon
CC. He also
agreed that the salaries were not paid by the plaintiff. However, it
is clear from the tenor of his evidence, that
what he intended to
convey was that the employees had employment contracts with Bladecon
CC but were nonetheless used by the plaintiff
and paid by the
plaintiff in the sense that the income from the contract was used to
pay the labourers.
[15] He agreed with the suggestion in
re-examination that the plaintiff would bear the actual costs of the
labour, and that the
plaintiff, and not Bladecon CC, was the
operating entity. Buchanan reiterated that the plaintiff ran the
project, obtained the
money, and distributed to the Bladecon CC
employees whatever was due to them for their wages.
[16] The last witness for the
plaintiff was John Howard Godfrey a contract management consultant.
He had been a civil engineer working
in the construction industry and
specialised in contractual dispute resolution for the last 20 years.
In doing so he had worked
both as an adjudicator and arbitrator. In
his view the plaintiff’s claim was conservative with regard to
the time period
because the equipment had actually stood for more
than three months. He regarded the rates which were charged as having
been reasonable
and accurate at the time for the equipment involved.
He also spoke to the reasons why the 28% discount was given –
ie that
as the equipment was not being used, wear and tear would not
take place and the operators would be used for other purposes. Mr
Godfrey testified that the industry regarded the loss which would
have been sustained by the plaintiff as being what the equipment
should have been earning if gainfully employed, but which was no
longer being earned because of the cancellation of the contract.
[17] At the end of the plaintiff’s
case the defendant applied for absolution from the instance. I
considered the application
and handed down a judgment refusing the
application.
[18] The defendant then closed its
case. The parties recorded that they had agreed the quantum of the
plaintiff’s damages
for plant and equipment standing time in
the sum of R438 984 and the standing time for labour at R20 000. It
was also agreed that
interest would run from the 26
th
April 2007 when a written demand was made for the plaintiff’s
damages.
[19] Mr
Duminy
argued that in
respect of labour standing time, these were not damages which had
been suffered by the plaintiff, but rather by
Bladecon CC. In this
regard he referred me to
Wambach v Maizecor Industries (Edms) Bpk
[1993] ZASCA 28
;
1993 (2) SA 669
(A).
[20] In that case the plaintiff sued
for damages sustained in a motor collision involving a mechanical
horse and trailer purchased
by, and registered in the name of, a
wholly-owned subsidiary company. The asset however remained the
property of the subsidiary
company and was not an asset of the
controlling company. In those circumstances the controlling company
was not the owner of the
vehicle and not entitled to sue for the
damage sustained to it. The court also held that any piercing of the
corporate veil would
nonetheless have left the court in total
darkness with regard to the ownership of the vehicles.
[21] Mr
Duminy
also referred me
to
The Shipping Corporation of India Ltd v Evdomon Corporation and
Another
[1993] ZASCA 167
;
1994 (1) SA 550
(A). In that matter the respondent had
sought to attach a ship owned by a private company whose issued share
capital was owned
by the government of India, to found or confirm the
court’s jurisdiction in an action in personam against the
government
of India. The court reiterated the rule that the property
rights of a company were to be kept distinct from its shareholders,
even
where there was only one shareholder. The piercing of the
corporate veil could only occur where there was an element of fraud
or
other improper conduct in the establishment or use of the company
or the conduct of its affairs.
[22] Finally Mr
Duminy
referred
me to
Al-Kharafi & Sons v Pema and others NNO
2010 (2) SA
360
(W), where the court held that it was necessary for the plaintiff
in that case to establish a cession in order to obtain relief.
The
suggestion was that the court should ‘reverse-pierce’ the
corporate veil in which case the cession would not have
been
necessary. Given the facts of the case ie that the one company held
no shares directly or indirectly in the other company
and did not
control it and did not have the same directors, they were held to be
different entities forming part of different economic
and financial
structures.
[23] Mr
Duminy
submitted that
on the basis of the above authorities there could be no piercing of
the corporate veil in order to enable the plaintiff
to recover
damages for the standing time for labour.
[24] In my view the cases cited above
are of no assistance in this matter. I say that because the evidence
established that the
plaintiff used the labour in the course of the
contract and paid that labour out of the proceeds of the contract. In
those circumstances
whatever the formalities in the company’s
books may have indicated, the reality was that they were employed and
paid by the
plaintiff. In those circumstances it is the plaintiff
that suffered the damages as a result of the persons employed on the
contract
incurring standing time after the cancellation of the
contract.
[25] The claim for standing time
arises out of the defendant’s breach of contract, the
cancellation of the contract by the
plaintiff and the fact that the
defendant asked the plaintiff not to de-establish its site after
cancellation, pending payment
by it of the amounts due. The damages
for standing time arose as a direct, natural and probable consequence
of the defendant’s
breach of contract. They were clearly within
the contemplation of the parties at the time they concluded the
agreement. The equipment
remaining on site after cancellation, and
the rates applied, were agreed between the parties and no issue
arises in that regard.
[26] In the circumstances I make the
following order :
‘
The
plaintiff is to pay the defendant :
the sum of R458 984;
interest on that sum calculated at
the rate of 15.5% per annum from the 26
th
April 2007 to
date of payment;
costs of suit.’
Date of hearing : 15
th
August 2012
Date of judgment : 28
th
August 2012
Counsel for the Plaintiff : S M
Alberts (instructed by Pearce Lister & Co)
Counsel for the Defendant : A R Duminy
(instructed by Elliot & Walker)