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Wierda Road West Properties (Pty) Ltd v Sizwentsabulagobodoinc 2017 JDR 1936 (SCA)

Invalidity of a lease agreement –does the absence of an occupation certificate invalidate a lease agreement?

Wierda Road West Properties (Pty) Ltd (“Wierda”), the appellant, instituted action against the respondent, SizweNtsabulaGobodo Inc (“Sizwe”) for the amount of R 7 867 548.78, in respect of rentals and municipal charges for the lease of its property at 41 West Street, Houghton, Johannesburg (“the property”).

The claim was based on a written lease agreement concluded between the parties on 3 August 2012 for a period of 5 years. The claim was based on the period July 2014 to March 2016, as Wierda had sold and transferred the property in March 2016. Sizwe raised various defences and instituted a counterclaim for an order declaring the lease agreement to be void ab initio.

Sizwe is a merged entity, comprising of Gobodo Incorporated (“Gobodo”) and SizweNtsaluba VSP. Wierda is a property-owning company entirely owned by the shareholders of the erstwhile Gobodo, whose premises at the time had become too small.

Wierda undertook to refurbish the property at Gobodo’s instance to meet its requirements and Gobodo moved in on 1 August 2010. In the course of the refurbishment it was discovered that there were no building plans in respect of the new wing added to the property by the previous owner. Wierda was unable to get building plans from the seller and it instructed its architects to draw plans for the new additions and submit them to the City Council of Johannesburg for approval.

On 1 June 2011 Gobodo merged with Sizwe to form the respondent, which concluded a new lease agreement in respect of the property with Wierda on 3 August 2012 for a period of 5 years.

Wierda got the building plans approved during mid-2015, without the approved plans, Wierda could not obtain an occupancy certificate. This was as a result of section 14(1)(a) of the National Building Regulations and Building Standards Act (“the Act”) rendered the granting of an occupancy certificate subject to the requirement, amongst others, that the building concerned was erected in accordance with the approved building plans.

All the shareholders in Gobodo were shareholders of Wierda, and five of them, were appointed as its directors. All the shareholders were aware of the absence of the occupancy certificate, as well as the City Council, as their inspectors conducted an assessment of the property and there was no objection to the occupation.

In June 2014, Sizwe vacated the premises without notice to Wierda. On 25 September 2014, after Sizwe vacated the property, Sizwe sent a letter to Wierda stating that the reason for vacating the property was due to the absence of the occupancy certificate, and therefore the lease agreement was invalid.

The high court found that the lease agreement was valid but unenforceable, as a result of the contravention of section 4(1) of the Act (lack of approved building plans for the leased property) and section 14(1) of the Act (the lack of the occupancy certificate for the leased property). Wierda appealed the decision.

The issues in the appeal were the following:

  1. whether the agreement is void ab initio due to the contraventions of section 4(1), read with 4(4), or section 14(1), read with section 14(4) of the Act;
  2. whether the failure to obtain an occupancy certificate rendered the property not suitable for the purposes for which it was let; and
  3. in respect of the cross-appeal, whether the high court erred in its finding that the agreement was not invalid, but merely unenforceable.

The relevant sections from the Act are as follows:

Section 14(1)(a):

(1) A local authority shall within 14 days after the owner of a building of which the erection has been completed, or any person having an interest therein, has requested it in writing to issue a certificate of occupancy in respect of such building –

  1. Issue such certificate of occupancy if it is of the opinion that such building has been erected in accordance with provisions of this Act and the conditions on which approval was granted in terms of section 7…”

Section 4(1):

(1) No person shall without the prior approval in writing of the local authority in question erect any building in respect of which plans, and specifications are to be drawn and submitted in terms of this Act”.

Section 4(4):

Any person erecting any building in contravention of the provisions of subsection (1) shall be guilty of an offence and liable on conviction to a fine not exceeding R100 for each day on which he was engaged in so erecting such building”.

Section 14(4)(a):

The owner of any building, or any person having an interest therein, erected or being erected with the approval of a local authority, who occupies or uses such building or permits the occupation or use of such building-

  1. Unless a certificate of occupancy has been issued in terms of subsection (1)(a) in respect of such building;

Shall be guilty of an offence.”

The SCA held the following:

  • Non-compliance with section 4(1) and 14(1) of the Act does not render the parties’ lease agreement void and unenforceable as there is no basis to justify reading an implied meaning into section 4(1) that the use or occupancy of a building which has no approved plans is prohibited.
  • Sizwe was fully aware of the lack of the occupancy certificate and had consented to the use and occupation under the circumstances. Therefore, Sizwe had received exactly what it had bargained for, which was office accommodation refurbished to its needs, in a building with an outstanding occupancy certificate which, to its knowledge, the owner (Wierda) was in the process of obtaining. Sizwe never complained of this alleged unfitness for letting, and only did so after it had vacated the property and to avoid the consequences of being held to a contract it had freely entered into.
  • The appeal was upheld with costs and the cross-appeal was dismissed with costs.

Bryte Insurance Company (Pty) Ltd / Raubex Construction (Pty) Ltd (Appeal case no. A5067/2016 – 8 December 2017)

The case involved an appeal by Bryte Insurance Company Limited against Raubex Construction (Pty) Limited’s claim for payment under a retention guarantee given in terms of the subcontract.

Raubex entered into a contract with Eskom to carry out construction works. A portion of the works were subcontracted by Raubex to Peakstar 133 (Pty) Ltd t/a Dolphin Construction (Dolphin).

The relevant part of the guarantee reads as follows:

‘2. Each demand by the Main Contractor shall certify:

  1. That the signatory is the Main Contractor authorised representative
  2. That the Subcontractor is in breach of his obligations under the Subcontract and that the Main Contractor is entitled to be paid amounts for which the Subcontractor is liable under the Subcontract; and
  3. That the amount demanded, which amount the certificate shall specify:
    1. Does not exceed the amount of Retention monies which, but for this Guarantee, would have been retained by the Main Contractor as Retention monies in terms of the Subcontract at the date of the certificates, less the aggregate of the amounts, if any, of retention money and other securities actually retained or held by the Main Contractor in terms hereof; and
    2. Does not exceed a good faith estimate of the costs to the Main Contractor of having the breach referred to in paragraph (b) remedied less the aggregate of any amounts withheld by the Main Contractor by reason of the breach referred to, and any amount of Retention money actually held by the Main Contractor save to the extent that same had been deducted from any previous demand in terms hereof’

Raubex sought payment under the guarantee of an amount of R1 409 726.11 and interest. The issue in the case was whether Bryte Insurance Company Limited (“Bryte”) was obliged to make payment to Raubex under the guarantee.

In the estimate provided in the certificate by Raubex, it was clear that many alleged defects which formed the basis of the estimate, were discovered and dealt with before the practical completion envisaged in the subcontract and were thus not costs covered by the guarantee. A very large proportion of the costs claimed are alleged to have been incurred by a third-party electrician remedying defects, but on closer inspection, were revealed to be in relation to costs already incurred in respect of Raubex itself, in the form of past expenses such as salaries, cellphone charges, diesel costs, accommodation and travel costs. Raubex conceded that the estimate could not be said to be a proper estimate of the costs to remedy the alleged breaches.

Bryte’s contention is that when Raubex made the claim against the guarantee it had knowledge that it was not entitled to the payment inter alia because Raubex’s estimation of the costs of having Dolphin’s alleged breaches remedied was not bona fide. Bryte argues that the lack of bona fides constituted fraud and Bryte had no obligation to comply with the demand.

Bryte argued that the demand did not comply with the requirements of clause 2(C )(ii) above requiring a certificate that the amount demanded did not exceed a good faith estimate of the costs of having the breach rectified.

This was denied by Raubex who argued that the lack of veracity in relation to the estimate was irrelevant because the guarantee only requires that the demand be made in the terms specified. They contend that they complied with the requirements of the guarantee and the payment obligation was triggered.

The court held that the parties, by inserting in the guarantee the element of good faith, clearly intended to eliminate and avoid a false or mala fide estimate. It was thus not enough for Raubex to show that there had been a formal certification of good faith: it also had to show that the certification was, in fact, made in the honest belief that it was a correct estimate of what it was entitled to be paid under the guarantee and Raubex failed to do so.

With regard to the fraud element, the court found that there can be no inference other than the claim and certification was made with knowledge that there was no entitlement thereto and none was suggested by on behalf of Raubex.

The appeal was upheld and the decision of the court a quo set aside and substituted with “The application is dismissed with costs”.

North Midland Building Ltd v Cyden Homes Ltd 2017 EWHC 2414 (TCC)

On 2 October 2017, at the High Court of Justice, Queen’s Bench Division, Technology and Construction Court, the honourable Justice Fraser handed down judgement, in the matter between North Midland Building Limited (“North Midland”) and Cyden homes Limited (“Cyden”). North Midland (contractor) and Cyden (employer) agreed to certain bespoke amendments to the Joint Contracts Tribunal (“JCT”) Design and Building Contract 2005 standard form contract. The court was faced with the contractual interpretation of one of the clauses, which concerned the way in which extensions of time would be dealt with in certain circumstances. The contract was for the construction of a sizeable house in the Midlands.

Clause as amended by the parties on 21 September 2009, read as follows:


1. any of the events which are stated to be a cause of delay is a Relevant Event; and
2. completion of the Works or of any Section has been or is likely to be delayed thereby beyond the relevant Completion Date,
3. and provided that
(a) the Contractor has made reasonable and proper efforts to mitigate such delay; and
(b) any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account then, save where these Conditions expressly provide otherwise, the Employer shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates to be fair and reasonable.”

Sub-clause (3) was the part added by the parties to the standard clause. The clause as amended added into the extension of time machinery the proviso that, in assessing an extension of time, “any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”.

The works were delayed, and the claimant applied for an extension of time for a variety of reasons. In the application, they included various other notices of delay, which relied upon different causes, or Relevant Events. Cyden’s response stated:

“Whilst no consideration has been made with regards to ‘reasonable and proper efforts to mitigate such delay’, the delays resulting from Delay Events 1 and 9 have been consumed by culpable delays attributable to North Midland Building, this reducing entitlement to an award of an Extension of Time”.

Cyden maintained that, if there were two delaying events, Event X and Event Y, occurring at the same time and causing concurrent delay to completion of the works, with Event X otherwise allowing the claimant to an extension of time, and Event Y being “another delay for which the Contractor is responsible”, then the contractor, North Midland, would not be entitled to an extension of time in respect of those two delaying events. North Midland disagreed with this interpretation.

North Midland relied upon the doctrine of prevention. Fraser J noted that in Multiplex Construction (UK) v Honeywell Control Systems Ltd [2007] BLR 195, Jackson J (as he then was) considered the relationship between the prevention principle and time at large, and explained that:

“Essentially the prevention principle is something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with his obligations, usually the obligation to complete the works by the completion date.”

It was further stated that the failure to complete the Works by the completion date or the extended completion date, will usually entitle the employer to deduct liquidated and ascertained damages (“LADs”).

Fraser J noted that, North Midland had relied on the principle of concurrent delays as well the prevention principle, in order to justify the granting of the declarations sought. North Midland argued that as a consequence of the first two propositions time was at large.

“…the concept of ‘time at large’ does not mean that the contractor has an indefinite time to complete the works. If the completion date in the contract, and the mechanism for having that extended by means of awarding so many weeks to an originally agreed completion date, are inoperable or for some other reason no longer applicable, in general terms the contractor’s obligation becomes one to complete the works within a reasonable time. That is what the shorthand expression ‘time at large’ is usually understood to mean.”

Fraser J referred to Multiplex and stated that Jackson J had considered the relationship between the prevention principle and time at large and stated:

(i) Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause delay beyond the contractual completion date;
(ii) Acts of prevention by an employer do not set time at large, if the contract provides for extension of time in respect of those events;
(iii) Insofar as the extension of time clause is ambiguous, it should be construed in favour of the contractor.

North Midland argued that the employer’s response in respect to the application for extension of time was unfair, and not in accordance with the contract. North Midland reasoned that an extension of time ought to be granted without taking account of concurrent delays for which the claimant is responsible, and disallowing those latter periods. Nevertheless, Fraser J maintained that the prevention principle did not simply arise in this case.

Fraser J agreed with the defendant, and confirmed that the amendments and the meaning of the words used were “crystal clear” and agreed to by the parties. He further confirmed that, where the clause (or contract) specifically provides that, if the contractor was responsible for a concurrent delay at the same time as that caused by a Relevant Event, then the delay caused by the Relevant Event would not be taken into account when assessing the extension of time, and the contractor would ultimately be excluded from claiming an extension of time in respect of that Relevant Event.

Fraser J held that, both parties were free to agree to any terms they wished, in respect of the manner in which concurrent delays would be dealt with, and that there was no rule of law which prevented the parties from agreeing that concurrent delay be dealt with in any particular way.

It was further held that, there was no authority, statutory or otherwise to accept that the LADs would not be applicable in this case. Fraser J conclusively referred to the case of Jerram Falkus Construction Ltd v Fenice Investments Inc (No.4) [2011] EWHC 1935 (TCC), which Coulsen J stated that:

“Accordingly, I conclude that, for the prevention principle to apply, the contractor must be able to demonstrate that the employer’s acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor’s own default, the prevention principle will not apply.”

Fraser J held that, where the parties have agreed to variations to the standard form contract, there is little room for interpretation later on, as parties will have to enforce what was contractually agreed upon. Therefore, parties can exclude the contractor’s entitlement to extension of time in respect to concurrent delays.

An Interesting Decision from the TCC

The Technology and Construction Court (TCC) is a specialized group of UK courts which handle disputes about building, engineering and surveying. Of interest is the recent decision of the TCC in the matter of Jacobs UK Limited v Skanska Construction Ltd [2017] EWHC 2395 (TCC), handed down in September 2017.

The parties in this matter had entered into an agreement for the provision of design services, in respect of a project for the design and replacement of street lighting in Lewisham and Croydon, England.

A dispute arose as to the adequacy of the design services provided by Jacobs, which was referred to adjudication by Skansa. Agreement was reached regarding the procedural rules and the timetable for the adjudication, the adjudicator was appointed and the initial submissions made. Skansa’s counsel, however, was unavailable and Skansa was, therefore, unable to timeously file its reply to these submissions. Both Jacobs and the adjudicator refused it an extension to do so. Skansa, therefore, withdrew its reference to adjudication and invited the adjudicator to resign, which he did.

Two months later Skansa submitted substantially the same dispute to a second adjudication. Jacobs then made application to the TCC for an injunction (similar to an interdict in South African law) restraining Skansa from proceeding.

The court found that although there is no principle of abuse of process in adjudication, subjecting a party to serial adjudications in respect of the same claim and requiring them to incur irrecoverable costs could amount to unreasonable and oppressive behavior.

In this case, however, the terms under which the adjudication was conducted made allowance for the reference of a dispute to a second adjudication, should the adjudicator resign. While it was unreasonable for Skansa to withdraw and reinstate its claim due to the unavailability of its counsel, this did not deprive the new adjudicator of jurisdiction.

As the dispute referred to the second adjudication was substantially similar to the first dispute, Jacobs would be able to make use of it previously drafted submission. The changes to Skansa’s version would most likely have been raised in its reply in the first adjudication, thus, in any event, entitling Jacobs to seek an opportunity to file a rejoinder. The inconvenience and additional costs suffered by Jacobs as a result of the second adjudication were not, therefore, considered to be so severe or exceptional so as to warrant intervention by the courts by way of injunctive relief.

The outcome may well have been different, however, had the parties been operating under an adjudication procedure which places a time bar upon the referral of a dispute to adjudication, such as that contained in Option W1 of the NEC3.

Primat Construction CC / Nelson Mandela Bay Metropolitan Municipality (1075/2016) [2017] ZASCA 73 (1 June 2017)

The case dealt with the issue of whether a party to a contract, who has elected not to accept a repudiation of the Contract by the other party, may, in the face of persistent and unequivocal intention of the other not to be bound, change its stance and cancel and sue for damages for breach of contract.

The facts of the matter were as follows:

  1. The parties had entered into a contract, pursuant to a tender, in terms of General Conditions of Contract for Construction Works (2004), for the upgrade of roads in Motherwell, Port Elizabeth and Primat was required to attend to the reconstruction of the road and supply materials;
  2. The works were scheduled to commence in April 2010 and end in November 2010, however, as a result of delays including severe storm damage, late payment of an insurance claim to Primat for the damage and non-payment by the Municipality against monthly payment certificates, the completion date was therefore extended to November 2011;
  3. As a result of the non-payment of their certificates, Primat suspended the work. The Employer was not happy with the suspension and wrote to Primat purporting to terminate the contract with immediate effect. It is common cause that the letter did not constitute a proper termination and Primat argued that the letter amounted to a repudiation of the contract by the Municipality and such repudiation was not accepted by Primat.
  4. The Municipality maintained that the contract was terminated and requiring Primat to vacate the site. Primat was adamant that they intend to remedy any alleged breaches by it but they were denied access to the site and despite their continued engagement with the municipality, the Municipality insisted that the contract had been terminated and that they will procure other contractors to finish off the works.
  5. As a result of the Municipality’s persistence that the contract had been terminated, Primat gave notice of its election to now accept such repudiation and cancelled the contract and that they intend to sue for damages in the sum of R22 million.
  6. The Municipality argued that once Primat elected not to accept the repudiation, it was precluded from changing its election and could not therefore cancel and claim damages.

The court found that:

  1. Generally, an aggrieved party must choose between the different remedies and is bound by his or her election. The remedies are inconsistent. The choice of one excludes the other, he cannot approbate and reprobate. Once he has elected to pursue one remedy, he is bound by his election and cannot resile from it without the consent of the other party (Bekazazu Properties (Pty) Ltd v pam Golding Properties (Pty) Ltd 1996 (2) SA 537 (C ) at 542E-F);
  2. However, the court held that the Municipality’s argument failed to take account of the fact that the doctrine of election is not inviolable. An aggrieved party is allowed to claim in the same action specific performance and in the event of non-compliance, cancellation and damages. The aggrieved party gives the defaulting party the opportunity to repent and if the defaulting party refuses or fails to perform, the aggrieved party should then be entitled to change its election, and cancel and claim damages. despite the opportunity to relent, the aggrieved party may elect to cancel;
  3. Where the defaulting party is clearly determined not to purge the breach, and shows an unequivocal intention not to be bound by the Contract, the aggrieved party may abandon his or her futile attempt to claim performance and change the election, claiming cancellation and damages.
  4. The Municipality argued that to allow a change of election would negate the fundamental principle that on breach, an aggrieved party must make an election and is then bound by it.

The court found that, the Municipality persisted in its repudiation and showed in no uncertain terms that it would not comply with its obligations and would not allow Primat to continue to perform. The court confirmed that Primat was therefore entitled to change its election and proceed to cancel the contract and claim damages.

This case highlights a very important point. Had the court confirmed the Municipality’s stance, Primat would be stuck with a contract where they are not able to perform and remedy the alleged breach and sustaining damages that they cannot recover which would not make any sense at all.

Synthesis Projects CC v SBTJ Properties CC

In July 2013, Synthesis and SBTJ concluded a written JBCC Series 2000, Edition 5.0, Code 2101 building agreement as amended by the contract data agreed between the parties for the construction of a project named Nina Apartments Project.

A dispute arose in respect of the issue of payment by SJBT and Synthesis terminated the agreement. Negotiations ensued and a “second” agreement came into being and Synthesis withdrew its letter of cancellation.

There was a dispute regarding the “second” agreement with Synthesis arguing that the “second” agreement was conditional but SBTJ argued that it had the effect that it “revived” the JBCC contract, in any case, the court held that the JBCC contract would remain in place.

A further dispute arose regarding breaches of the JBCC contract, inter alia, relating to payments and ultimately a termination of the contract. The disputes were referred to adjudication and the parties agreed that the JBCC Adjudication Rules (October 2014) would dictate the procedure.

The Adjudicator was appointed and the Adjudicator’s decision was subsequently handed down.

In the adjudication proceedings, Synthesis sought inter alia payment of the unpaid certified payment certificates, payment for monies not certified and not paid as well as payment for loss of profit.

SBJT did not oppose the relief sought by Synthesis and also submitted a counterclaim premised upon the JBCC contract.

The Adjudicator found in favour of Synthesis and in accordance with the Adjudicator’s decision, Synthesis issued an invoice to the Respondent. Despite demand, the SBJT failed to comply. Instead, SBJT gave notice of dissatisfaction with the Adjudicator’s decision but failed to take the required steps to pursue the arbitration proceedings,

Synthesis then applied to court in terms of Clause 6.2.2 of the JBCC contract for the enforcement of the Adjudicator’s decision. SJBT opposes the application on the ground that the Adjudicator lacked jurisdiction to adjudicate the dispute.

SBJT’s opposition was premised on the provisions of Clause 40.1 and argued that the jurisdiction afforded to the adjudicator was to be determined by the parameters of clause 40.1 and was limited to:

  1. Matters arising out of the conclusion of the agreement;
  2. Concerning the agreement;
  3. Or the termination of the agreement

SJBT argued that the provisions of Clause 40.1 did not extend to or include the disputes placed before the adjudicator.

Therefore, SJBT sought, inter alia, dismissal of the claims and to be discharged of all liability in connection with Synthesis’ claims.

The court held as follows:

  1. The scope of clause 40.1 is not limited in any way and is wide enough to extend to the issues before the adjudicator;
  2. At no stage did SBJT contest the adjudicator’s decision during the adjudication process. It participated in the adjudication proceedings actively without any reservations. In its notice of dissatisfaction, the issue of jurisdiction is also not raised. The parties clearly accepted that the adjudicator had the required jurisdiction to decide the dispute.
  3. The issue of jurisdiction of an adjudicator or arbitrator is to be determined at the stage when they are appointed.
  4. Clause 40.1 does not determine the “jurisdiction” in respect of the disputes, it is the agreement appointing the adjudicator or arbitrator that determines the disputes formulated at that stage and determine the jurisdiction.
  5. Both the claims by Synthesis and SJBT arose from the provisions of the JBCC contract and those issues were the issues considered and determined by the Adjudicator.
  6. The court therefore found that there was no merit in SJBT’s submission relating to the issue of non-jurisdiction and the opposition stood to be dismissed.

Areva NP Incorporated in France v Eskom Holdings Soc Limited and Others

Dissatisfaction with the outcome of a tender process can result in an award, made in terms thereof, being taken on review.  This was the case in Areva NP Incorporated in France v Eskom Holdings Soc Limited and Others (CCT20/16, CCT24/16) [2016] ZACC 51 (21 December 2016), which concerned four applications to the Constitutional Court.

 Eskom had awarded the contract for the replacement and installation of six steam generators, at the Koeberg Nuclear Power Station, to Areva.  Westinghouse Electric Belgium Société Anonyme (WEBSA), the second respondent in this action, contested the award.  The High Court found in favour of Eskom and Areva.  The SCA found in favour of WEBSA, overturning the High Court decision, but did not award it the tender, opting instead, to remit the tender to Eskom for fresh adjudication.  Eskom and Areva both sought leave to appeal this decision.  WEBSA sought leave to cross-appeal the SCA’s decision not to award it the tender and adduce new evidence with respect thereto.

Eskom and Areva’s applications for leave to appeal were granted.  WEBSA’s applications were dismissed because it had no locus standi to institute the review proceedings in its own right.  On this basis, Areva’s appeal was upheld.

Locus standi relates to the right or capacity to bring an action.

During the tender process WEBSA had submitted a tender with a covering letter stating that the offer was submitted on behalf of Westinghouse Electric Company (WEC).  WEBSA and WEC were separate legal entities, one located in Belgium, the other in the USA, but both members of the Westinghouse Group.  The Court found that WEBSA had acted as WEC’s agent in the submission of the tender.

It was held (the minority dissenting) that, just because WEBSA belonged to the same group of companies as WEC, did not give it the locus standi to institute court proceedings in its own right in a matter that only directly affected only WEC.

A stark warning to all those acting within a group umbrella to keep track of which entity, in fact, engaged in a particular transaction.

Trencon Construction (Pty) Ltd v South African Airways (Pty) Ltd 2015 JDR 0090 (GJ)

In September 2009, Trencon and SAA concluded a written agreement for the construction of a departure lounge at the OR Tambo International Airport.  The general conditions of contract were the JBCC Principal Building Agreement, (PBA), and Focus Project Management was appointed as the Principal Agent.

Trencon duly executed the works, however, SAA and Focus refused to issue a final certificate due to certain defects in the works. It was common cause between the parties, however, that these defects were caused by a previous contractor hired to execute the works, who had been liquidated prior to completion thereof.

Trencon, therefore, made application for payment from SAA in the sum of R 552 040.38 or that Focus be ordered to issue a final payment certificate in this amount.

SAA relied on Clause 8.2 of the PBA to argue that Trencon was not entitled to payment as it had not complied with its obligations.

Clause 8.2 of the PBA states:

“The contractor shall make good any physical loss and repair damage to the works, including clearing away and removing from site, all debris resulting therefrom, which occurs after the date on which the possession of the site is given and up to the issue or deemed issue of the certificate of final completion and resulting from…”

SAA also argued that the clear intention of SAA was to have the works completed and thus it could not have been intended by the parties that Trencon, despite its appointment to complete the works, could receive payment without the works having been completed.

In response, Trencon relied upon Clause 8.5 of the PBA which states:

“The contractor shall not be liable for the cost of making good physical loss and repairing damage to the works where this results from…

8.5.9      Design of the works where the contractor is not responsible in terms of 4.0”

It was common cause that Trencon was not responsible for the design of the defective works.

Trencon also relied on Clause 26.4 of the PBA, which states:

“Should the principal agent not issue a defects list, in terms of 26.2.2 or 26.3.2, within seven (7) calendar days from the end of the defects liability period, the contractor shall notify the employer and principal agent.  Should the principal agent not issue such defects list within seven (7) calendar days of receipt of such a notice, the certificate of final completion shall be deemed to have been issued on the date of expiry of the initial notice period and final completion shall be deemed to have been achieved on such date…”

In light of this clause, Trencon argued that, as no defects list had been issued, the certificate of final completion was deemed to have been issued.

The court found that:

1. Clause 8.2 of the PBA relates to loss or damage which occurs after the date on which possession is given to the contractor and, as such, was irrelevant to these proceedings;

2. There is no other provision of the agreement which renders Trencon liable to repair the defects, as such, it was not obliged to make good the loss or repair the damage and it did not matter whether it was aware of these defects or not;

3. SAA’s argument regarding the intention of the parties does not accord with the written terms of the agreement and the clause in question is ambiguous;

4. Final completion had been achieved as a consequence of the deeming provision contained in Clause 26.4 of the PBA.

SAA was ordered to pay Trencon the R 552 040.38 claimed, within 10 days of the date of the order, and pay Trencon’s costs of the application.

Herrie Windsor Construction (Pty) Ltd v Raubenheimers Inc 7533/2015 H245 2013 (22 April 2016)

On 29 January 2010, at George, the Plaintiff concluded a lease agreement with Parexel International South Africa (“Parexel”).

It was a material term of the lease agreement that the lessee would have an option to renew the lease for a further period of five years commencing from 1 July 2010. In terms of clause 13 of the lease agreement the lessee would, if so required in writing by the lessor, return the premises to a state prior to any alternators affected thereon. Parexel exercised its option to renew the lease so that same was valid and binding until 30 June 2015.

Paraexel utilised the leased premises for a specific purpose of testing medicine. Although a South African company with leased premises in George, Western Cape, Paraexel was an international company with its parent company based in the USA. Dr Michelle Middle (“Dr Middle”) was one of its directors.

Later in 2010 Paralexel decided that it would withdraw from South Africa. Dr Middle (a director of both Parexel, the plaintiff and a co-owner of the leased premises) seized the opportunity and decided to set up and start off the same business for her own account under the name of Ubuntu utilising an entity Ibunti Trade 56 (Pty) Ltd (“Ibunti”) as a vehicle to procure the business from Paraexel as a going concern.

Dr Middle wished to procure Paraexel as a going concern. Paraxel agreed, subject to two conditions:

  1. There would have to concluded a sublease agreement between Parexel and Ibunti. In the event of the suggested sub-lease agreement being concluded between Parexel and the new entity, Parexel would guarantee rental payment for the duration of the remaining period of the lease.
  2. Dr Middle would acquire the equipment installed at the leased premises for no consideration at all but that, as a quid pro quo, Paraxel required to be released from its obligation arising from the restoration clause (estimated to be about R8m to restore the premises).

The above two conditions were agreed upon in principle, but Ibunti, being a start-up company, did not have R8m to meet the estimated restoration costs. The Plaintiff’s board of directors, after further negotiations with Dr Middle, agreed the plaintiff would waive its rights arising from the restoration clause (thereby also releasing Paralexel of its obligation to restore), but that Ibunti would assume the restoration clause subject thereto that Ibunti, for the duration of the sub-lease agreement, transfer ownership to the plaintiff of all movable goods in the leased premises and that these conditions be incorporated and/or included in the proposed sub-lease agreement.

Dr Middle instructed her attorneys to draw the sub-lease agreement, which would need a clause in terms of which ownership of all improvements, equipment and movable assets in the leased premises transferred from Parexel to Ibunti. The sub lease would also need a clause in terms of which ownership of the movable assets would be transferred to the plaintiff, such transfer to endure to the duration of the remaining period of the lease. The transfer of ownership of movable assets would be in exchange of the plaintiff waiving its right against Parexel arising from the restoration clause.

Dr Van Breda, of the defendant, who acted for Dr Middle, was to attend to the drafting of the sub-lease agreement. The sub-lease agreement was signed and Ibunti took over Parexel’s Business of testing medicine for its own account. However, business did not got as anticipated and Ibunti went into voluntary liquidation. Ibunti, which subsequently changed its name to Q Dot Pharma (Pty) Ltd, was provisionally liquidated on 7 June 2012.

Upon liquidation, the liquidators took ownership of all movable goods in the leased premises. The Plaintiff’s endeavour to claim the movable goods from the liquidators did not succeed.

The plaintiff complained that it suffered loss as a consequence of failure by the defendant, in drafting a sublease agreement between Parexel and Ibunti, omitted to provide the security the plaintiff required in the sub-lease agreement in terms of which plaintiff would secure ownership of the movable assets in the leased premises in the event Ibunti ceased business operation before the expiry of the lease and that such omission constituted negligence which attracts liability.


As the plaintiff did not instruct the defendant to draw the agreement (such instruction being given to Dr Middle to Dr Van Breda on behalf of Ibunti) the issues that arose were whether the defendant, in the circumstances of this matter, owed the plaintiff a legal obligation to act reasonably in preparing the sub-lease agreement.


Various jurisdictions such as the USA; Germany and the Commonwealth have held liable legal advisors in delict in respect of their actions which affect parties other than their own formal clients in a wide variety of situations. South African courts have not as yet had much opportunity to consider the specific issues relating to attorney’s liability to non-clients.

The court held that it was justified considering foreign law, so as to give some guidance, and summarised as follows:

  • In Hawkins v Clayton 1988 79 ACL 69 – a firm of solicitors was held liable for failing to draw a will timeously, causing would be beneficiaries to be disinherited;
  • In Midland Bank Trust Co Limited and Another v Hett, Stubs & Camp [1978] 3 All ER 571 – a firm of solicitors was held liable for failing to register an option to purchase land, causing the grantee of the option to be unable to purchase the land until it had already been sold;
  • In Penn v Bristol & West Building Society [1996] 2 FCR 729 – a firm of solicitors was held liable for failing to check with the wife of their client whether she wished her house to be transferred, in a case where the husband co-owner obtained the transfer by fraudulent means.

Jr Midgley, in his work Lawyer’s Professional Liability cites the authority of Biankanja v Irving 49 Cal 2D 647 where the California Supreme Court, in the determination of a liability to a non-client said the following:

“The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff would suffer injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct and the policy of preventing future harm.”

In terms of Delictual Liability (Legal Duty) in the matter of Lucas v Hamm, the California Supreme Court held that a third party could take a third party action founded in either contract or delict.

Midgley in his work Lawyers Professional 1992 navigates many authorities in the USA, and concludes that in Anglo American Law two tests have been used to determine whether contracting parties owe third parties any delictual duties, these being: foreseeability tests and the multi-criteria balancing test. Midgley states that the foreseeability test has lost much of its influence and the multi-criteria balancing test, along with policy considerations, is preferred. The policy considerations are foreseeability of harm, knowledge of the extent to which the transaction was intended to affect non-client; reliance on the opinion given and potential excessive burden on the profession, amongst other factors.

In as far as misrepresentation is concerned, Midley at pg 109 notes that where a lawyer makes representations which are relied upon by a third party, there is no need to deviate much from the usual criteria of delictuall liability (general rule: lawyer who intentionally or negligently makes a misrepresentation acts unlawfully).


The Defendant attorneys, due to no inventory of movable goods being available, suggested the creation of a sub-lease agreement clause in which Ibunti would transfer ownership of the movable assets to the plaintiff in the event that Ibunti ceased business operations before the expiry of the sub-lease agreement. This form of security did not materialise and the movable goods were seized by the liquidators on the granting of the final order of liquidation. The plaintiff’s claim to the liquidators for the release of the goods to it was unsuccessful.

The Defendant attorneys did not have formal instructions from the Plaintiff to protect its interests. Dr Van Breda knew at the time of the drafting of the lease agreement the interest that the plaintiff sought to protect and the incorporation thereof in the sub-lease agreement. As pointed out by Sir Robery Megarry VC in Ross v Caunters (a firm),a solicitor who [is] instructed by his client to carry out a transaction to confer a benefit on an identified third party owed a duty to that third party to use proper care in carrying out the instructions”. Dr Van Breda clearly had a duty to use proper care in favour of the plaintiff in carrying out its instructions.

In conclusion the court held that the defendant WAS liable to the plaintiff for such damages the plaintiff may have suffered by reason of the fact that ownership of the equipment and the other movable goods in the then leased premises had not been transferred to the plaintiff.

Case Note - Group Five Construction (Pty) Limited v Minister of Water Affairs and Forestry (39161/05) [2010] ZAGPPHC 36 (5 May 2010)

This case provides useful insight to some of the complexities and difficulties which exist in multi-tiered dispute resolution clauses commonly found in construction contracts. Furthermore, contractor’s should be mindful of the dangers of prescription – particularly where they are involved in long term construction projects.

In this case before the North Gauteng High Court, Group Five claimed payment from the Minister of amounts arising from a written construction contract for the construction of the Injaka Dam. The contract was based on the general conditions of contract for civil engineering works, 6th edition, 1990.

Clause 61 of the contract provided for the reference of disputes to mediation. On 14 November 2000 and during March 2004, the parties entered into written amendments to the effect that disputes would be referred to a Dispute Review Board (‘DRB’) created by Amendment 1 (‘DRB1’).

The Minister raised a special plea of prescription of the basis that certain claims (A to D) were referred to the DRB under the first addendum, that Group Five did not accept the recommendations of the DRB, that Group Five gave notice to the Minister that it intended to refer such claims to court, that each claim fell due in terms of section 12(1) of the Prescription Act 68 of 1969 (‘the Act’) on the date on which Group Five gave notice of its intention to refer the matter to court, that the dates were all more than three years before Group Five served its summons on the Minister and, accordingly, that such claims had prescribed in terms of s 11 of the Act.

In reply, Group Five argued that the three-year period for prescription only commenced on the date of completion under the contract. This date was 4 March 2003 as reflected in the final approval certificate issued in accordance with clause 55(1) of the contract. Using this date for the purposes of calculating prescription, Group Five’s position was that their summons had been served in time (summons was served on 2 December 2005).

S 12(1) that prescription shall commence to run as soon as the debt is due.

The issue which the court was required to decide was effectively the date upon which the debts became due. If they became due on the dates upon which the Group Five gave notice that it intended to refer them to court they clearly prescribed as the summons was served more than three years after the last of these dates.

Claim A was a claim for additional payment occasioned by adverse physical conditions or artificial obstructions which could not have been reasonably foreseen by an experienced contractor at the time of submitting his tender. In the performance of the contract Group Five encountered circumstances and conditions in respect of the quantity, quality and suitability of rock for use as concrete aggregates different from the technical data provided in the tender documentation and/or which constituted adverse physical conditions as a result of which Group Five became entitled to payment of the amount claimed. Group Five gave notice to refer this claim to court on 6 September 2001.

Claim B was a claim for additional payment and extension of time arising from an engineer’s instruction to suspend concreting activities. Group Five gave notice to refer this claim to court on 30 October 2001.

Claim C was a claim for additional payment and extension of time arising from (i) the engineer’s instruction to suspend earthworks activities and (ii) vary the works. Group Five gave notice to refer this claim to court on 22 February 2002

Claim D was a claim for contract price adjustment. Group Five gave notice to refer this claim to court on 20 March 2002.

At no time had there been any ruling on claims A-D in favour of Group Five. They were not accommodated in any later certificate and were not incorporated in the engineer’s final payment certificate.

All of the procedural requirements relating to the submission of the claims and the declaration of disputes had been complied with by Group Five.

In considering the parties’ respective cases, the court set out the legal position regarding the payment of the contract price under a construction contract – that in the absence of contractual provisions to the contrary, the remuneration is due and payable only when the contractor has completed the entire work. The court cited an example of a contractual stipulation providing for payment of remuneration before the contractor has completed his performance in terms of the contract as the provision for interim payments. Incorporating such a provision in the contract is standard practice and is done to enable the contractor to finance the work. The incorporation of such a provision does not make the contract divisible. Before the contractor will be entitled to the final payment he must complete the work in terms of the contract.

In line with this legal position, Group Five contended that the amounts claimed fell within the definition of the contract price whilst the Minister contended that the amounts fell due as per the various claims and dispute resolution provisions.

These contentions were clearly based on two opposing interpretations of the contract.

The court set out the scheme for the determination of claims under the contract (as amended) as follows:

  1. a ruling by the engineer; if disputed
  2. a decision by the engineer; if disputed
  3. a referral to the DRB; if disputed
  4. court proceedings.

Provided the contractor complied with the time limits the contractor was entitled to proceed from one step to the next to have a dispute about a claim determined. In setting out this scheme, the court found that before instituting court proceedings the contractor was obliged to go through the dispute resolution procedure, but, having done so this impediment to litigation was removed and the contractor was entitled to institute legal proceedings forthwith as soon as he had given notice. Accordingly, prescription began to run no later than the giving of notice.

But did prescription commence earlier? In this regard Group Five had contended that the submission of claims under the contract interrupted prescription.

In this regard, the court held that the wording of section 15 of the Act did not support Group Five’s contention. S 15(6) clearly provides that the process which interrupts the running of prescription must be a document whereby legal proceedings are commenced

Since submission of a claim to the engineer clearly does not constitute service of a legal process whereby legal proceedings are commenced, delivery of the claims to the engineer did not interrupt the running of prescription.

The court held that Group Five’s claims had prescribed.

Group Five appealed this judgment but were unsuccessful.

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