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[2014] ZAWCHC 167
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City of Cape Town v Khaya Projects (Pty) Ltd and Others (21166/12) [2014] ZAWCHC 167; 2015 (1) SA 421 (WCC); [2015] 1 All SA 81 (WCC) (11 November 2014)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NO: 21166/12
DATE:
11 NOVEMBER 2014
REPORTABLE
In
the matter between:
CITY
OF CAPE
TOWN
................................................................
Applicant
And
KHAYA
PROJECTS (PTY) LTD
.......................................
First
Respondent
PEER
AFRICA (PTY) LTD
...........................................
Second
Respondent
THE
MINISTER OF HUMAN SETTLEMENTS,
WESTERN
CAPE
...........................................................
Third
Respondent
JONATHAN
MITCHELL
.............................................
Fourth
Respondent
WITSAND
“IEECO” HOUSING BENEFICIARY
SUPPORT
ORGANISATION
..........................................
Fifth
Respondent
WITSAND
PHASE ONE COMMITTEE
..........................
Sixth
Respondent
SACLAWA
Amicus Curiae
JUDGMENT:
DELIVERED 11 NOVEMBER 2014
MANTAME,
J
A.
INTRODUCTION
[1]
Applicant came before this court for two forms of a declaratory
relief. The first being that first respondent has failed to
satisfy
its constitutional obligations as set out in
Section 26(1) of the
Constitution of the Republic of South Africa, 106 of 1996
(“the
Constitution”), alternatively, that first respondent, in
concluding the contract to provide and construct housing
as part of
the Witsand EECO Human Settlement Project, it undertook
constitutional obligations as set out in
Section 26(1) of the
Constitution of the Republic of South Africa, 106 of 1996.
Secondly, that the arbitration between first and second respondents
that was referred to fourth respondent in 2009 for adjudication
has
lapsed in terms of
Section 23(a)
of the
Arbitration Act 42 of
1965
.
[2]
This matter served before me for the first time on 24 April 2014. On
that day first respondent raised some points in
limines
to the
constitutional relief that applicant sought.
2.1
Firstly, that the applicant has not shown that it had complied with
Rule 16
A of the Rules of this Court.
2.2
Secondly, that the applicant has not joined all parties with a real
and substantial interest in the outcome of these proceedings.
2.3
Thirdly, that the relief which the applicant seeks is academic.
[3]
Mr Katz SC opposed these points in
limines
and submitted that
as the matter stood, it is ripe for hearing. Any postponement that
would be granted by this court would amount
to an undue delay.
[4]
I made an order on the same day that the applicant comply with
Rule
16
A in order to allow any possible
amici
to be joined in the
proceedings. The matter was then postponed for hearing to 30 May
2014. On 30 May 2014 SACLAWA Enterprise CC
was admitted as
amicus
curiae
in these proceedings. The third point forms part of
applicants’ main application and will be dealt with as such in
my judgment.
B BACKGROUND
FACTS
[5]
The then Blaauwberg Municipality which now falls under the applicant,
commissioned a consultant to investigate the possibility
of new
housing options for the residents of Witsand. At the time,
Witsand was an informal settlement in the West Coast.
Various
options were considered, and after extensive consultation with the
community, it was decided that the best option was to
develop Witsand
into a formal township. According to applicant, in deciding to
develop Witsand, applicant was acting to meet
the obligations in
terms of the right of access to adequate housing in terms of Section
26(1) of the Constitution.
[6]
In 2000 applicant commenced discussions with second respondent about
the possibility of developing Witsand as a showcase for
integrated
environmentally energy efficient and cost optimised (“IEEECO”)
human settlement development. The IEEECO
development promised
optimization of local energy and environmental conditions. According
to this planning, the housing project
was going to have health
benefits for the residents who suffered from lung and heart diseases
as a result of air pollution from
wood and coal burning. The
community was extensively work- shopped about this project and they
fully supported the concept. Applicant
supported the development of
approximately 2000 formal housing units in Witsand, and further
supported the IEEECO methodology in
principle. In order to evaluate
the IEEECO concept, applicant decided to proceed with a pilot project
of 400 units. This was known
as Phase 1. It was then decided that
after completion of Phase 1 of 400 units, applicant would proceed
with the development and
construction of the remaining 1600 units.
[7]
In December 2001, applicant concluded an agreement with second
respondent for the development of Phase 1 - Witsand Housing Project.
Second respondent was appointed as a developer of the project in
terms of the agreement, and their primary obligation was to “
develop
and complete the Project
” in compliance with the
Government’s National Housing Code.
[8]
In February 2002, applicant and second respondent concluded an
agreement with the Witsand community that was represented by
Witsand
Housing Committee. The agreement was referred to as “the Social
Compact Agreement”. Clause 4.1 of this agreement
read as
follows:
“
The
common objective is to ensure that the first phase of the Witsand
site of 400 residential erven is developed in the (sic) response
to
the needs of the homeless people within the immediate Witsand
Informal Settlement and that the development process shall endeavour
to support the creation of a viable, self-sustainable community.”
Applicant
further concluded two subsidy agreements with the Western Cape
Housing Development Board to fund the Witsand Housing Project.
Those agreements were signed in March and September 2004
respectively. According to applicant second respondent acting
as
applicant’s agent and in fulfilment of its obligations,
proceeded with issuing a tender for the construction of 320 of the
400 units of Phase 1. The other 80 units were going to be
constructed according to a traditional PHP process – meaning
that these units would be built by locally-trained residents under
the supervision of second respondent. These units were
also
subjected to the IEEECO development methodology. After the
tender process was finalised, first respondent was appointed
as the
contractor of the 320 units in Witsand.
[9]
In October 2005, second respondent concluded a contract with first
respondent. By this time, according to applicant, its
contract
with the second respondent’s, for some reason had largely
fallen by the wayside. Applicant stated that second respondent’s
role now changed from that of the applicant’s developer to its
implementing agent. According to applicant, first respondent
was obliged in terms of the following clause of the first and second
respondent’s agreement to:
“
4.
…keep a “
competent person
to administer and control the works”
on
site
“
continuously...during
the execution of the work”;
5.1
…comply with all acts of Parliament, National Building
Regulations, the Provincial Housing Department’s Minimum
Norms
and Standards, the
IEEECO
prescripts and Municipal by-laws…;
11.1.1
begin the works and proceed with due skill, diligence, regularity and
expedition…”
The
agreement entered into by first and second respondent regulated the
construction process, payment and dispute resolution mechanism,
that
is, mediation and arbitration. For instance, Clause 25 provided
that a dispute will initially be solved through mediation.
If
mediation failed, Clause 25.3 provided that if either party disputes
the opinion of the mediator, such party shall refer the
matter to
arbitration. “
Where the dispute is submitted to
arbitration, then the arbitration shall be held in terms of the
Arbitration Act and
shall be conducted in accordance with the current
Rules for the Conduct of Arbitrations published by the Association of
Arbitrators
and shall be heard by a sole arbitrator unless otherwise
agreed by the parties.”
[10]
In 2005, first respondent commenced to construct the 320 units.
According to applicant, from the beginning, there were
concerns about
poor supervision by first respondent at the site. Applicant
authorised payment to second respondent at various
stages of
completion. However, second respondent had concerns about
defects in the units as a result of first respondent’s
workmanship. When these defects were discovered, second
respondent stopped making payments to first respondent. Despite
concerns about the poor state of the houses, applicant granted
Occupation Certificates (also known as “
Happy letters
”)
to the residents and they were allowed to take occupation although
there were concerns about the defects. The full
extent of the
defects became apparent on occupation. Second respondent
commissioned an expert to look at the defects.
The expert
inspections revealed as follows:
10.1
That the fire walls / party walls separating the two halves of the
semi- detached units were improperly constructed. This affected
insulation and created a fire hazard;
10.2
That the roof sheets and the steel roof trusses had not been properly
installed. There were a variety of defects in the
workmanship,
including missing screws, improperly placed screws, using the wrong
screws, loose screws, leaving holes in the roof
sheeting, missing
anchor wires and improperly aligned roof sheeting. There was a risk
that roof sheets would lift or even be blown
off.
10.3
The “Isoboard®” overpulin roof insulation used by
first respondent to construct the ceiling of the units was
improperly
installed and plagued by unacceptable workmanship. This increased
fire risks; decreased insulation; increased risk of
mould; and
increase energy usage.
10.4
The foundations were not properly constructed considering the
environmental conditions in the area.
[11]
First respondent agreed to remedy the defects, but second respondent
disputed its entitlement to be paid the outstanding and
any
additional amounts for the remedial work. This dispute was not
capable of resolution and it was then referred to arbitration
in 2008
– 2009 by the parties. Fourth respondent was subsequently
appointed as arbitrator. It seems the arbitration has dragged,
as it
has to date not been concluded. Though, this appears to be the case,
first and second respondent, as they are parties to
this dispute
entered into a written arbitration agreement with the arbitrator to
extend the time limits as contemplated in terms
of
Section 23
(a) of
the
Arbitration Act 42 of 1965
. Applicant did not form part of these
proceedings, but claims that he has an interest in the matter. First
and fourth respondents
have refused to furnish applicant with
documentation amongst others, extending the period of this
arbitration on the basis that
those proceedings are private and
confidential. Applicant then approached this court as an interested
party for these two forms
of declarators.
C ISSUES
[12]
This Court is now called upon to determine whether first respondent
could be held accountable in terms of Section 26(1) of
the
Constitution, and further, whether the arbitration proceedings
between first and second respondents that are still pending
before
the fourth respondent could be held to have lapsed in terms of
Section 23
(a) of the
Arbitration Act 42 of 1965
.
D ARGUMENT BY THE
PARTIES
[13]
At the start of proceedings, Mr Combrink for the second respondent
indicated that though he has been briefed by second respondent
he
will not be arguing the matter, he had a watching brief and will
therefore abide by the decision of the Court. Mr Katz
SC and Mr
Bishop appeared for the applicant, Mr Olivier SC and Mr Verster
appeared for first respondent and Mr Schreuder appeared
for the
Amicus Curiae.
[14]
Mr Katz SC for the applicant argued that private parties like first
respondent who contract to build houses as part of a government
housing project incur constitutional obligations to build “
adequate
”
housing in terms of Section 26(1) of the Constitution. Whatever
rules might be imposed by the contract, they must
produce an end
product that meets constitutional standards. Section 26(1) of
the Constitution affords everyone in South Africa
“
the
right to have access to adequate housing.”
The constitution is not limited to the vertical application of rights
between the person and the state. Section 8 (2)
of the Bill of
Rights bind a private party “
if,
and to the extent that, it is applicable, taking into account the
nature of the right and the nature of any duty imposed by
the
right”
.
According to applicant, first respondent had a constitutional duty
towards the Witsand community to provide “adequate”
housing. This argument was based on
Governing
Body of the Juma Musjid Primary School & Others v Essay N.O. and
Others
[1]
,
where the provincial department of education was operating a public
school on private land owned by a trust. The trust sought
to
evict the school from the property because the department had failed
to conclude an agreement for the use of the land.
One of the
issues before the Constitutional Court was whether the trust had any
constitutional obligations under the right to a
basic education in
terms of Section 29(1) (a) of the Constitution that would prevent the
granting of an eviction order. Nkabinde
S held that:-
“
It
is clear that there is no primary positive obligation on the Trust to
provide basic education to the learners. That primary positive
obligation rests on the MEC. There was also no obligation on
the Trust to make its property available to the MEC to use as
a
public school.”
[15]
It was submitted that Nkabinde J held further, that the purpose of
Section 8 (2) of the constitution “
is not to obstruct
private autonomy or to impose on a private party the duties of the
state in protecting the Bill of Rights.
It is rather to require
private parties not to interfere with or diminish the enjoyment of a
right.”
As a trust had permitted the department to use the
land and “
performed the public function of managing,
conducting and transacting”
the affairs of the school, it
incurred
“a negative constitutional obligation not to impair
the learners’ right to a basic education.”
It was
therefore held that the trust acted reasonably in the circumstances.
[16]
According to Mr Katz SC, there is nothing novel about private parties
incurring direct horizontal constitutional obligations,
including
obligations relating to socio-economic rights such as housing. In
Government
of the Republic of South Africa v Grootboom
[2]
,
where Yacoob J held:
“
A
right of access to adequate housing also suggest that it is not only
the state who is responsible for the provision of houses,
but that
other agents within our society, including individuals themselves,
must be enabled by legislative and other measures to
provide
housing.”
So
the constitutional court found that Section 36(1) imposes “at
the very least, a negative obligation upon the state and
all other
entities and persons
to desist from preventing or imposing the
right of access to adequate housing.
[17]
Furthermore, Mr Katz SC submitted that the degree to which a contract
in the area of housing can be determinative of the rights
and
obligations of parties must be determined against the background of
the right of access to adequate housing. Applicant accepts
though
that the primary duty to provide housing to people of South Africa
rests on it and the state, and not with the private parties.
The
state takes full responsibility to identify and address the need for
housing, develop policies, budget to find and implement
those
policies. The state also has an obligation to contract with
developers, to protect the interest of the beneficiaries to monitor
the performance under the contracts and to enforce compliance
therewith. It is not at all the intention of the applicant to shirk
its constitutional obligations or shift those to the first
respondent. Be that as it may, the state depends on private
companies
to perform its obligations in terms of Section 26. So
it is applicant’s submission that when the company contract
with
the state for the construction of houses, it intends to “promote
and fulfil” the constitutional right to housing and
therefore
incurs certain basic constitutional obligations. First respondent in
undertaking with second respondent, who is the agent
of the applicant
to build the 320 units, voluntarily accepted the constitutional
obligations. First respondent was required to
build houses that
complied with basic building standards, safe from fire that does not
expose its inhabitants to the elements,
and has no risk of collapse.
This obligation according to applicant arises in two ways, first, it
is an implied term of first and
second respondents’ agreement
that the units built would constitute “
adequate housing”
in terms of Section 26(1) of the constitution and, secondly, first
respondent incurred an additional direct constitutional obligation
not to build houses that fell short of the basic standard of adequacy
demanded by the constitution. In all, “
adequate
housing”
must comply with nationally accepted industry
building standards, including SANBS standards, national and
provincial building codes,
manufacturer Specifications and Agrément
SA requirements. First respondent did not comply with these
standards, as their
workmanship was full of defects, as evaluated by
different experts in the building industry.
[18]
Further, in support of this submission, Mr Katz SC, in this regard
referred to
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer of the South African Social Security Agency
and
Others
[3]
,
where the Court had to consider whether a private company that had
successfully tendered to pay social grants had incurred
constitutional
obligations. Froneman J held that:
“
When
Cash Paymaster concluded the contract for the rendering of public
services, it too became accountable to the people of South
Africa in
relation to the public power it acquired and the public function it
performs. This does not mean that its entire commercial
part
dependent on, or derived from, the performance of public functions is
subject to public scrutiny, both in its operational
and financial
aspects.”
The
service providers who build housing are in similar position as Cash
Paymaster. The recipients of housing control access to housing
and
determine the quality and adequacy of these houses.
[19]
The second leg of applicant’s relief was that the arbitration
has lapsed because the arbitrator failed to reach a decision
within
four months as stated in
Section 23(a)
of the
Arbitration Act. Though
applicant is not party to these proceedings, does it have a
locus
standi
to seek that declaration? Applicant submitted that
it has
locus standi
on two grounds: - firstly, it is second
respondent’s principal and therefore entitled to be a party to
the arbitration, secondly,
it is affected by the arbitration, and
Section 23(a)
is designed to protect third parties as well as parties
to the arbitration. It was the applicant’s contention
that
second respondent has always acted as applicant’s agent.
That could be gleaned from the first and second respondents’
agreement. The fact that first and second respondents sought to
regulate their relationship
inter se
in no way detracts from
the principal – agent relationship that has always existed
between them. As second respondent’s
principal, applicant
was a party to the agreement and was entitled to participate in the
arbitration and is therefore entitled
to seek an order that, the
arbitration has lapsed. Applicant contended further that, even
if applicant is not second respondent’s
principal, applicant is
clearly affected by the outcome of the arbitration.
Accordingly, fourth respondent was required to
make an award four
months after the date on which such arbitrator or arbitrators entered
on the reference, or the date on which
such arbitrator was, or was
called upon to act by notice in writing from any party to the
reference. It was applicants’
submissions that, the four
month period ended at least on 19 October 2009, some four and a half
years ago. The parties to
the arbitration have refused to make
available a document extending the duration of the arbitration, on
the basis that the arbitration
is private, including second
respondent whom applicant claims to be its principal. Applicant
submitted that it is entitled
to the said document. Applicant
further contended though, that second respondent has no objection in
making the document
available to applicant, but it could not make it
available without the consent of the arbitrator and first
respondent. So
failure by the parties to prove the existence of
this document can only be interpreted as an acknowledgment that it
does not exist,
or has not prevented the lapsing of the arbitration
by operation of law. So applicant is therefore entitled to the relief
it is
seeking.
[20]
First respondent opposed this application on the basis that it has no
obligation whatsoever, as referred to by applicant to
provide housing
in terms of
Section 26(1).
Mr Olivier SC for first
respondent argued that the relief sought against first respondent is
academic. Applicant
contended that if it is awarded the relief
it seeks, it would be able to put first respondent’s and would
be “
offenders
” on a “
blacklist
”
to prevent it from receiving future tenders from the government and
secondly, that would be a “
message
” to other
contractors not to “
hide behind commercial contracts to
justify building houses that demean their occupants’ dignity…
”
It is first respondent’s submission that both the blacklisting
and warning to others are measures which can
be achieved in the
economic domain without having an empty court order. Further,
this order would be academic in the sense
that it will have no
practical effect on the contractual relationship between applicant
and first respondent, it will have no effect
on the arbitration
between first and second respondent as the issues involved is whether
the first respondent has complied with
the terms of the contract and
not about the so-called “
constitutional obligations
”.
[21]
It was first respondent’s submission that this constitutional
relief stood to be adjudicated in terms of
Section
19(1)(a)(iii) of the Supreme Court Act 59 of 1959
.
The fact that a person cannot claim relief consequential upon the
determination of a declarator is not a bar to the court
exercising
its discretion in favour of the applicant, but the absence of an
existing and concrete dispute may cause the court not
to grant the
declarator –See-
Shoba
v Officer Commanding, Temporary Police Camp
[4]
and
JT
Publishing (Pty) Ltd v Minister of Safety and Security
[5]
.
[22]
Counsel for the first respondent argued further, that as the case is,
applicant does not seek to exercise any “existing,
future or
contingent rights” against the first respondent, but rather an
implied term in Section 26(1) of the Constitution,
of which first
respondent denies its existence. What applicant seeks to do, is
asking this Court to express an opinion on
whether Section 26(1) of
the Constitution requires the inclusion of an implied term in a
construction agreement between builders
and the state or organ of
state. According to Mr Oliver SC, the constitutional obligation
which is addressed in Section 26(1)
of the Constitution is not
enforceable against individuals – not in terms of the
constitution, and not in terms of common
law – See
Theewaterskloof
Holdings (Edms) Bpk v Jacobs
[6]
.
[23]
First respondent’s Counsel submitted further, that it is not
possible for this court to deal with the alleged defective
work by
second respondent as this dispute is still the subject of arbitration
between the first and second respondents. In
any event,
respondent denies the existence of any defective work. Besides,
applicant cannot raise the existence of any defects
in claims against
first respondent as there is no privity of contract between them.
The contract in existence is between
the first and second
respondents, and not with the applicant. Based on the
applicant’s supposition that it is entitled
to raise the issue
of the defective work against the first respondent in order to claim
a declarator as second respondent’s
principal, applicant should
have foreseen a major dispute of fact in that regard. That
could be deduced from the fact that
first and second respondent took
their dispute to arbitration.
[24]
First respondent further disputes that applicant is the principal of
first respondent, but if at all that was the case, applicant
should
be bound by first respondent’s submission of the issues
currently before arbitration. There was no need at all for
the
applicant to approach this court.
[25]
Further, Mr Olivier SC submitted that applicant cannot claim the
declarator that the arbitration has lapsed simply because
the parties
to the arbitration, that is, first and second respondent have agreed
in writing that the date for the award be extended,
and secondly,
applicant has no
locus standi
at all to claim such relief. The
existence of such an agreement was made known to the applicant by
means of a letter from the arbitrator
dated 21 September 2012.
Furthermore, applicant was made aware by means of a letter dated 29
September 2012 by the arbitrator that
arbitration proceedings are
conducted on a private and confidential basis, and could not send the
document extending the time of
arbitration as requested. The
arbitrator confirmed in the said letter that “
this
arbitration has not lapsed, as the parties have previously mutually
agreed to extend the time limits set by Section 23(a)…”
Applicant therefore has no
locus standi
to seek this relief as
it is not a party to these proceedings in his own name, or in a
representative capacity. Furthermore, there
is no reason for him to
doubt the existence of such an agreement as he was informed in
writing. First respondent disputed that
second respondent was the
agent of the applicant. The first and second respondent’s
agreement described applicant as the
“
project developer”
and second respondent as the “
implementing agent
.”
Such reference to second respondent as “
implementing agent”
must not be confused with agency relationship as applicant does. Also
in the same agreement, though applicant is mentioned –
nowhere
in the said document was applicant described as the “
principal”
of second respondent or defined nor described as a party in its own
right.
[26]
Furthermore, counsel submitted that in the contract that was
concluded by applicant and second respondent, second respondent
is
described as the “
developer
” and applicant as “
the
municipality.
” There is no mention of a
principal-agent agreement. According to
Clause 2.2.4
of
that contract, it is stated that - the municipality “
does
not accept any responsibility for the execution of the project or for
the rectification of defects which comes to light as
a result of the
inspection or for any other reason.”
That clause is
not compatible with a classic agency agreement, where liabilities
incurred by the agent
ipso jure
become those of the
principal. Even during the arbitration proceedings, neither the
arbitrator nor second respondent regarded
applicant as second
respondent’s principal. Also second respondent, in the
arbitration agreement with first respondent,
did not convey that it
represented the applicant as its agent. Second respondent even
refused to disclose the confidential
documents to the applicant.
If there was an agency agreement, surely the principal should be
bound by its agent’s decision
and not come to this court as an
independent party. It was first respondent’s argument
that applicant’s application
should be dismissed with costs in
its entirety.
[27]
The
Amicus
, in turn argued that contractors such as themselves
and first respondent do not have any constitutional obligations as
set out
in Section 26(1) of the Constitution. They only have a
negative obligation not to interfere with a person’s
constitutional
right to have access to adequate housing as
contemplated in the said Section. Contractors do not undertake
any constitutional
obligation when they contract with the state in
respect of the construction of houses and associated infrastructure.
It is
the duty of the state to take reasonable legislative measures
in order to achieve the progressive realisation of everyone’s
right to access to adequate housing in terms of Section 26(1) of the
Constitution. If applicant intends to bring about re-ordering
of private relations in imposing additional obligations “
above
and beyond the contracts
” between applicant, first and
second respondents, it has to ensure that whatever has to be
delivered “
above and beyond”
the tender
specifications, the state has to pay for such expenses.
Further, that will result in uncertainty and chaos in
the building
industry, in relation to the housing projects subsidised by the
state.
[28]
According to the
amicus
, the state has taken reasonable
legislative measures, through the publication of a National Housing
Code in terms of the Housing
Act and other measures within its
available resources to achieve the progressive realisation of
everyone’s right to have
access to adequate housing. If regard
is had to the applicant’s relief, the contractor will be
required to build to a higher
standard than the one undertaken, or
covered by a contract entered into between the contractors and the
state; it will add to the
obligations of contractors and tenderers in
terms of common law and ordinary contractual obligations of all
contractors which enter
into agreements with the state;
constitutional obligations which the state might seek to be added to
a building contract,
will be a term implied by law. In his
argument, Mr Schreuder contended that, what applicant is seeking is
already catered
for in Section 217 (1) of the Constitution which
reads as follows:
(1)
“When an organ of state in the National, Provincial and local
sphere of Government or any other institution identified
in national
legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost effective.”
[29]
Furthermore, the National Building Regulations and Building
Standard’s Act No 103 of 1977 (“the Building Act”)
sets out all the building standards that the contractor has to comply
with. The National Building Regulations require all
buildings
to comply with the structural and other requirements. Codes of
Practice were promulgated in terms of the said regulations
to
facilitate its proper implementation under the auspices of the
National Home Builders Registration Council (“NHBRC”)
which is the regulatory body of the home building industry. The
NHBRC’s mandate is to protect the interests of the
housing
consumers and to ensure compliance with regulated building industry
standards. In terms of the
Housing Consumers Protection
Measures Act 95 of 1998
:- any person in the business of building
homes is required by law to register with the NHBRC. The NHBRC
certifies builders
who meet regulated industry criteria for
technical, construction and financial capabilities. All housing
schemes and houses
are required to be enrolled with the NHBRC to
protect home owners against poor building practices. This means
therefore,
that there is already a regulatory framework in place
which governs, amongst others, contracts between the state and the
contractors
in respect of housing schemes undertaken by the state in
its progressive realisation of everyone’s right to access to
adequate
housing. Neither the Constitution, nor this regulatory
framework places a legal obligation on any other person than the
state
to provide adequate housing as contemplated by Section 26 of
the Constitution. It was Mr Schreuder’s argument, that
the state has always taken reasonable legislative measures in order
to achieve progressive realisation of the right of persons
to have
access to adequate housing and it still continues to do so.
[30]
It was
amicus’s
argument,
that though the applicant seeks a declarator, it has not made out a
case as to what constitutes “
adequate
”
housing and what the phrase “
basic
constitutional standards”
mean. The relief as it is sought is vague and embarrassing and
is therefore excipiable. The constitutional court has pronounced
on
the fact that it is unreasonable for a private entity to be
forced to bear a burden which should be borne by the state
for
providing the occupiers with accommodation –
See
President
of the Republic of South Africa & Another vs Modderklip Boerdery
(Pty) Limited.
[7]
Given such findings by the constitutional court, the relief sought by
the applicant fails the test of effectiveness and its
application
falls to be dismissed on that basis alone. If regard were to be
had to
Modderklip
Boerdery
(
supra
)
,
contractors like the first respondent and
Amicus
could not be expected to provide housing other than contractually
determined in terms of the procurement process, executed in terms
of
the Constitution, national, provincial and municipal legislation.
The state bears the exclusive duty to provide persons
with access to
adequate housing. Further, applicant has failed to rely on the
relevant legislation in order to give effect
to rights flowing from
Section 26 of the Constitution. In
Mazibuko
& Others vs City of Johannesburg
[8]
,
where the constitutional court held, that where legislation has been
enacted to give effect to a right, a litigant should rely
on that
legislation in order to give effect to the right or alternatively
challenge the legislation as being inconsistent with
the
Constitution. Applicant should have resorted to legislation
such as the Housing Act, National Housing Code, National
Standards
(NHBRC standard, National Building Regulation, etc.) in order to seek
relief against first respondent.
Amicus
submitted
that in view of these arguments, the constitutional relief should be
dismissed with costs.
D ANALYSIS AND
THE APPLICABLE LEGISLATION
[31]
Applicant approached this Court seeking two forms of declarators
against first respondent. Applicant entered into a contract
on
or about December 2001 with second respondent to develop a strategic
triangle of land in Atlantis (referred to as Witsand Project)
as a
low cost housing project. In this contract, applicant was
referred to as “
the municipality”
and second
respondent was referred to as “
the developer
.”
In order to realise the construction of these houses, second
respondent entered into an agreement with first respondent
who is a
building contractor to attend to the building of these houses.
Second Respondent was referred to as “
primary support
organization”
and first respondent was referred to as
“
secondary support organization
.” Applicant
submitted that when it contracts with a private company, it intends
to promote and fulfil its constitutional
obligation in terms of
Section 26. Applicant who approached this Court for at least
two declarators against first respondent,
did not sign any contract
with first respondent. Applicant relied on the fact that he is
an interested party and further
contended that at all times during
the Witsand project, applicant acted as “
principal,
”
and second respondent its “
agent
.” First
respondent on the other hand disputed this “
principal –
agent”
relationship between these two parties, and
submitted that if second respondent acted as such, applicant must be
bound by second
respondent’s submission of the issues which are
before an arbitration. In any event, it was first respondent’s
submission that its contract is with second respondent. There
was a real dispute of fact between these parties regarding
the
alleged defects in those houses; hence they submitted themselves to
arbitration jurisdiction. I will deal with the arbitration
issue in my judgment when I am dealing with the second declarator.
I will now turn to deal with the first declarator.
[32]
Applicant seeks a declarator against first respondent that it failed
to satisfy its constitutional obligations to construct
adequate
housing in terms of Section 26(1) of the Constitution, or
alternatively, that first respondent in concluding the contract
to
provide and construct housing as part of Witsand Project, it
undertook constitutional obligations as set out in Section 26(1)
of
the Constitution. As I stated in the aforementioned paragraph,
applicant did not have a direct contractual relationship
with first
respondent, but stated that the standard of the houses that were
constructed by first respondent was appalling.
The roofs were
not properly installed and that led to leaks and the risk of it being
blown off; the insulation and firewalls were
not installed safely,
creating a fire risk. Furthermore, the foundations were not
properly constructed and therefore at a
risk of collapse.
Despite requests to remedy these defects, first respondent failed to
do so, instead it resorted to arbitration.
It was therefore
first respondent’s constitutional obligation to build adequate
housing as stipulated in Section 26(1) of
the Constitution.
[33]
First respondent vehemently opposed this relief on the basis that
applicant cannot raise the existence of any defects in claims
for a
declaration against the first respondent as there is no privity of
contract between them. Knowing full well that this dispute
is
currently before arbitration, this Court cannot deal with such issues
as this currently serve in the arbitration tribunal. Further,
the
constitutional obligation envisaged by Section 26(1) of the
constitution is in any event not enforceable against individuals
–
not in terms of the Constitution, neither in terms of common law. A
declarator, without having the effect of enabling the
applicant to
claim damages or specific performance from the respondent, is clearly
academic in effect.
[34]
Applicant has conceded that it is not aware of the extent of the
actual damages to those defective houses, besides the fact
that by
the end of 2013, the estimated cost of repairing those units stood at
R17 million. In this judgment, I will not deal
with the extent
of damages incurred for the reason that damages in those houses are
not conclusive. In any event, that is
not relevant for the
determination of this declaratory. I will now turn to deal with
Section 26(1) of the Constitution on
which this relief is premised.
Section 26(1) of the Constitution reads as follows:-
“
Everyone
has the right to have access to adequate housing.”
In
order to ensure that everyone enjoys this right in the “bill of
rights” the state procures the services of private
companies in
order to give effect to “adequate housing.” Can it
be safely said that private companies, in the
form of first
respondent, if indeed provided sub-standard houses for the state,
failed to satisfy its constitutional obligations
or in concluding the
contract to construct housing as part of Witsand Project, it
undertook constitutional obligations in terms
of Section 26(1) of the
Constitution? In my view, that could not be so as the
provisions of Section 26(1) are further qualified
in the following
paragraph. Section 26(2) reads as follows:-
(2)
“
The state must take reasonable legislative and other
measures, within its available resources, to achieve the progressive
realisation
of this right.”
There
is nowhere in this section where the legislature attempts to delegate
this constitutional obligation to individuals or private
parties.
I have taken consideration of applicant’s submission in this
regard that “
the City does not seek to shirk its
constitutional obligations or to shift those obligations to Khaya
.”
In
my opinion, applicant is doing exactly what it contended not to be
doing. For this court to be asked by applicant to impose
additional constitutional obligations to first respondent would be
tantamount to “over-regulating” the building industry
that has been ably regulated.
[35]
Applicant further submitted that, it was first and second
respondents’ implied term in their contract that the units
build would constitute “
adequate housing”
.
First respondent disputed that contention. Unfortunately second
respondent is not before court to neither accept nor
dispute that
contention. In my view, applicant is not in a position to make
those allegations as it was not privy to what
these parties agreed
to. I tend to agree with first respondents’ counsel that
applicant is in the process of seeking
opinion to this court on this
implied term in a contract that was concluded by two independent
parties. It was first respondents’
argument that, there
was a considerable dispute of fact, regarding the so-called defective
work, hence the parties involved decided
to resolve their dispute
through arbitration.
[36]
Applicant is correct that the state has a constitutional obligation
to provide adequate housing. If that is conceded
to be the
case, it is the duty of the state to monitor the project up until its
finalisation, if it decides to procure it to the
third party.
Though Section 8(2) of the Bill of Rights of the Constitution binds
private parties to certain rights in the
constitution, it does so to
an extent it is applicable, taking into account the nature of the
right and the nature of the duty
imposed by that right. In
Juma
Musjid (supra)
, it was held that the purpose of Section 8(2)
is not to obstruct private autonomy or to impose on private party
duties of the state.
Similarly in this matter, Section 26(1) is
qualified further in Section 26(2) of the constitution. The
burden imposed by
the constitution particularly in Section 26(1)
cannot shift or extend to the individuals and private party and/or
parties.
In my view, this court cannot make a finding either
that it is an implied term of first and second respondents’
agreement
that the units built would constitute “
adequate
housing”
in terms of Section 26(1) of the constitution as
argued by applicant. Applicant did not form part of these
parties’
agreement or agreements and could not make such
pronunciations.
[37]
In my finding, what would constitute “
adequate housing
”
could only be achieved if the state make use of reasonable
legislative and other measures, within its available resources
to
achieve the progressive realisation of this right. In this regard as
the state did in the past, it should continue to make utilization
of
procurement legislation, (the tender specifications must include or
comply with one or more of the several national standards
published
in the South African Bureau of Standards (“the SABS”),
Government’s National Housing Code, the
Housing Act 107 of
1997
, the Provincial Housing Department’s Minimum Norms and
Standards, the iEECO prescripts, Municipal by-laws, Agrément
SA requirements, the National Building Regulations and Building
Standards Act 103 of 1977, in line with the National Building
Regulations, the Codes of Practice that have been promulgated for the
implementation of the National Home Builders Regulation Council.
If the contractor transgresses, and does not comply with building
regulations or standards, there is a regulatory body that the
company
is accountable to. In any event, by law it is compulsory for
all the companies in the home / housing building industry,
to
register with NHBRC. I am certain that when applicant and / or
its developer, award tenders, they do not award to companies
that are
not in compliance with legislative standards. For applicant to
contend that first respondent should produce an end
product that
meets constitutional standards, of which such constitutional
standards have not been defined by them, in my opinion
goes against
the rules of fairness. In my view, first respondent could be
held to have a negative obligation not to interfere
or obstruct a
person’s constitutional right to have access to adequate
housing in terms of Section 26(1). It
should be
imperative for applicant to always insist on a continuous stage
assessment of construction by experts in order to ensure
quality
workmanship. If the state is proactive in taking the
legislative measures seriously and manage the process properly,
it
will be able to close loopholes in the contracts. It is
completely unacceptable for contractors to build shoddy and
sub-standard
houses for the poor. Since the state has a
constitutional obligation to deliver service to the people in the
form of low-cost
housing in this instance, in my view, the state has
to tighten up the screws and ensure that the houses that the
contractors produce
are dignified, suitable for human habitation and
they should pass the muster. If they do not – applicant
should not
issue the occupation certificates or “
happy
letters
” for occupation by the recipients. If the
contractor transgresses, it will have a damages claim, or a claim for
specific
performance on the contractor. If applicant continues
to issue occupation certificates for occupation by recipients, like
it did in the present case, in my opinion that is an indication that
it is happy with the work that was performed by the contractors,
unless there is some form / kind of an undertaking that has been
given by the defaulting party.
[38]
I have considered all the authorities that were referred to by the
parties. I now turn to deal with
Allpay Consolidated
Investment Holdings (Pty) Ltd (
supra
),
where the constitutional court had to consider whether a private
company (Cash Paymaster) that had successfully tendered to pay
social
grants had incurred constitutional obligations. Mr Katz SC
submitted that first respondent concluded a contract for
the
rendering of public services like Cash Paymaster.
Amicus,
in
this regard contended that
Allpay Consolidated Investment
Holdings (Pty) Ltd (
supra
)
does not find application in this regard, as the litigant relied on
the
Social Assistance Act 13 of 2004
for the payment of social grants
by the state and the awarding of tender by South African Social
Security Agency (“SASSA”)
in order to give effect to the
right, or alternatively, challenge the legislation as being
inconsistent with the Constitution –
See
Mazibuko
(
supra
)
.
Amicus
submitted that applicant does not challenge, rely or resort to
any legislation in the building industry and therefore this
application
should fail. First respondent associated themselves
with
Amicus’s
submission in this regard.
[39] In my analysis,
the constitutional obligations in that case are considerably
different from the one sought by Applicant in
that, the obligations
were expressly spelt out in
Allpay
(
supra
).
Applicant submitted that if that declarator is granted, it would be
able to put first respondent on a “
blacklist”
to
prevent it from receiving future tenders, and further it would give a
“
message”
to other contractors not to “
hide
behind commercial contracts to justify building houses that demean
their occupants’ dignity…
” I agree with
first respondent’s submission that although there are plans in
place by the applicant for non-compliance
by private companies, the
fact remains that the constitutional obligations have not been
defined by applicant as to exactly what
they are. In my
judgment, I have already stated that according to my interpretation,
Section 26(1) only confers constitutional
obligations to the state.
In any event in
Allpay Consolidated Investment Holdings (Pty)
Ltd (
supra
)
at paragraph
[56] – stated
“
The
contract between SASSA and Cash Paymaster also makes clear that the
latter undertook constitutional obligations. The request
for
Proposals further stipulates that the tender is subject to the
Constitution. The contract itself indicates that the Request
for Proposals forms part of the contract and was incorporated by
reference. The preamble of the contract states that “SASSA
is in terms of the applicable legislative framework responsible for
the administration, management and payment of social grants
in line
with the Constitution.”
In
terms of the contract that was entered into by Applicant and Second
Respondent, there was no mention of constitutional obligations
that
had to be undertaken by any party. Also, in terms of the
contract that was entered into by first and second respondents,
there
was no mention of constitutional obligations that have to be
undertaken by any party. It is my view, that a party should
be
held accountable on what it agreed on. It can never occur after
ten years of entering into a contract, that an interested
party would
approach this court claiming constitutional obligations that were
never expressed or implied for that matter.
If a
party intends to enforce some obligations,
albeit
constitutional in nature – such obligations should be made
transparent and be spelt out in the contract and a party who fails
to
comply with such obligations should know the consequences thereof.
Taking into account my analysis above, a declarator
is not warranted
as it would not serve any purpose in this regard. In my view,
this relief sought should fail.
[40]
I now turn to deal with the second relief. The second form of
the relief sought by the applicant is a declaration that
the
arbitration between first and second respondents has lapsed in terms
of
Section 23(a)
of the
Arbitration Act 42 of 1965
. Applicant
contends that this arbitration has lapsed due to the fact that the
arbitrator failed to reach a decision within
the four (4) months
period contemplated in
Section 23(a)
of the
Arbitration Act.
The
question arises as to whether applicant is entitled to seek this
declarator - although it is not party to these proceedings; and
if
indeed the arbitration has lapsed, what are the consequences thereof?
[41]
First respondent does not dispute the fact that the four month period
has lapsed, but contended that such period was extended
by agreement
between the parties and such award can therefore be made at a later
date. The document extending such proceedings
cannot be made
available to applicant, as such were private and confidential.
If at all applicant is the principal of the
second respondent, it
should abide by the decision of its agent, that is, second respondent
in this regard. Be that as it
may, first respondent disputes
the fact that applicant and second respondent have a principal –
agent relationship.
This therefore means that applicant has no
locus standi
to claim that the arbitration has lapsed.
[42]
Though applicant argued that in an agreement between applicant and
second respondent, it appears clearly on the title page
and preamble
that second respondent is the applicant’s “
implementing
agent
”, in my opinion, such reference does not expressly or
impliedly prove that there is an agency relationship that normally
applies in the law of agency. In my view, this argument by
applicant stands to be rejected, on the basis that, the law of
agency
regulates the performance of a juristic act on behalf or in the name
of one person who is specifically referred to as a
principal by
another who is specifically referred to as an agent. The agent
is authorised by its principal to act with the
result that a legal
tie (
vinculum juris
) arises between the principal and a third
party which creates, alters or discharges legal relations between the
principal and a
third party. In this contract, that was not
what was envisaged. The agreement refers to “
the
municipality
” and “the
developer”
as
distinct parties, who have to fulfil functions and obligations as per
their written contract.
[43]
Unfortunately, second respondent did not agree or deny this principal
– agent relationship as alleged by applicant.
It was
first respondent’s submission that, though applicant was
mentioned in its contract with second respondent, it was
never
described as a principal. If that was the intention of
applicant and second respondent, such relationship would have
been
reflected as such throughout the contract. First respondent
further stated that, for instance,
Clause 2.2.4
of the
contract between applicant and second respondent states that the
municipality (applicant) “
does not accept any responsibility
for the execution of the project or for the rectification of defects
which comes to light as
a result of the inspection or for any other
reason.”
That is in contrast with a classic agency
agreement where liabilities incurred by the agent
ipso iure
become
those of the principal. I agree with first respondent’s
counsel’s submission in this regard.
[44]
In my view, it is patently clear that applicant and second respondent
contracted with each other as independent parties.
First and
second respondents for instance agreed to resolve their disputes
through arbitration as reflected in the paragraph dealing
with
settlement of disputes. Paragraph 25.3 reads as follows:-
“…
Where
the dispute is submitted to arbitration, then the arbitration shall
be held in terms of the
Arbitration Act and
shall be conducted in
accordance with the current Rules for the Conduct of Arbitrations
published by the Association of Arbitration
and shall be heard by a
sole arbitrator unless otherwise agreed by the parties.”
In
the above quotation, there is no mention of applicant’s duty to
intervene as a principal, if that process stalls.
I am
satisfied that if applicant knew that the arbitration award was
supposed to have been granted at least by 19 October 2009,
and was
sure of its
locus standi
it should not have waited until 2012
to file this application. As an interested party, it should
have set the law in motion
within a reasonable period. In the
result, this relief should also fail, as applicant lacks
locus
standi
to bring these proceedings before this Court.
E ARBITRATION
[45]
Having said so, it is my duty to deal with the arbitration
proceedings in this judgment that are currently before the fourth
respondent. Though fourth respondent did not oppose the second
relief that was sought by applicant, the correspondence between
applicant and fourth respondent served before this Court in the form
of annexures to this application. Upon considering the
contents
of those documents, there is no doubt in my mind that indeed the
arbitration proceedings are currently before fourth respondent,
and
he confirmation that its duration was extended by agreement between
the parties. Due to the nature of these proceedings,
they are
supposed to be cost efficient and quicker than litigation – not
the other way round. Applicant approached
this Court before the
finalisation of these proceedings as an interested party, and to
declare them as lapsed and furthermore for
this Court to make a
further determination thereafter if the prayer is successful.
Unfortunately, applicant’s prayer
is not successful.
Further, this Court could not pronounce and or make a finding on the
proceedings that are still pending
before another forum.
[46]
At this point, I might as well remind first, second and fourth
respondent, that the dispute between the parties detrimentally
affects the socio-economic rights of the poor. I am aware that
no order was sought against the fourth respondent in these
proceedings. Similarly, I will not turn a blind eye where there
are serious allegations of falling roofs or imminent crumbling
structures against the marginalized people. It is in the public
interest that a determination of issues is made and the arbitration
proceedings be finalised by the fourth respondent within a reasonable
period. The amount of time that has lapsed without
finalisation
of these proceedings is completely unacceptable. The delay in
finalisation of these proceedings resulted in
applicant approaching
this Court out of frustration, using tax payer’s funds to try
and reach finalisation of this matter.
As this Court was
advised that proceedings were proceeded with on a “
private
and confidential
” basis, - it was never disclosed exactly
at what stage they were currently at. Fourth respondent is
asked to re-convene
and finalise the arbitration with the reasonable
and necessary co-operation by the parties within a period of four (4)
months from
the date of this judgment.
F FINDING
[47]
In the result applicants application is dismissed.
G COSTS
[48]
I have considered all the submissions made by the parties in this
matter in respect of costs.
48.1
Chamber Book application – granted
by Samela, J on 1 March 2013
I
have perused the chamber book order granted by my brother Samela, J
in this respect and, there were no costs awarded.
In
the result that each party will pay its costs.
48.2
Chamber Book application – 7 August 2013 and the hearing of
15 August 2013
This
chamber book was filed by first respondent compelling applicant to
furnish certain documents, and also to set aside the chamber
book
order and it was opposed by applicant.
In
my view, this was an abuse of process by first respondent. In
the result, first respondent is ordered to pay costs of the
chamber
book application of 7 August 2013 and the hearing of 15 August 2013.
48.3
The hearing of 14 November 2013, 24
April 2014 and 11 August 2014
Applicant
is ordered to pay the costs of these proceedings, including costs of
respondent’s two counsel and costs of
amicus curiae.
48.4
The hearing of 30 May 2014
Each
party is ordered to pay its own costs.
MANTAME,
J
[1]
[2011]
ZA CC 13
;
2011 (8) BCLR 761
(CC)
[2]
[2002]
ZA CC 19
;
2001 (1) SA 46
CC;
2000 (11) BCLR 1169
CC at para 34
[3]
[2014]
ZACC 12
;
2014 (6) BCLR 641
(CC);
2014 (4) SA 179
(CC)
[4]
1995
(4) SA (1) (A) at 14 F - H
[5]
[1996] ZACC 23
;
1997
(3) SA 514
(CC) at 525 para 15
[6]
2002
(3) SA 401
(LLC) 411 E
[7]
[2005] ZACC 5
;
2005
(5) SA 3
(CC);
2005 (8) BCLR 786
(CC)
[8]
2010
(4) SA 1
(CC);
2010 (3) BCLR 239
(CC) at para 73