MEC for Department of Human Settlements, Eastern Cape Province v Aveng Grinaker - LTA Building Cape (Pty) Ltd (EL 459/2015) [2021] ZAECGHC 56 (8 June 2021)

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION, GRAHAMSTOWN)

Case No.: EL459/2015

ECD Case No.: 859/2015

Matter heard on: 10/05/2021

Judgment delivered on: 08/06/2021

In the matter between:

MEC FOR DEPARTMENT OF HUMAN SETTLEMENTS, Appellant

EASTERN CAPE PROVINCE

and

AVENG GRINAKER – LTA BUILDING Respondent

CAPE (PTY) LIMITED

JUDGMENT

SMITH J:

Introduction

[1] This is an appeal against the judgment of Mageza AJ, delivered on 5 June 2018, and in terms of which the appellant was ordered to pay to the respondent the sum of R3 038 972, interest thereon and costs of the suit. The appellant was subsequently granted leave to appeal by Tokota J, due to the unavailability of Mageza AJ.

[2] The respondent’s civil action against the appellant was precipitated by the refusal of the Head of the Department of Human Settlement for the Province of the Eastern Cape (the Department) to pay an interim payment certificate issued by the principal agent. The Department’s decision to reject the claim was based on its assertion that the contract did not provide for claims in respect of “standing time”, but only for those based on milestones achieved and actual work done. The appellant was cited in his official capacity as Member of the Executive Council for the Department.

Factual background

[3] The relevant facts are mainly common cause and can be summarised as follows.

[4] On 21 June 2012, the respondent, a construction company, was appointed by the Department to undertake a project for the rectification of 700 defective houses in Mount Ayliff. The appointment was pursuant to a public tender process, the validity of which is not in dispute.

[5] The parties thereafter concluded two written agreements, namely the JBCC Series 2000 Principal Building Agreement (The JBCC Agreement) and a Funding Agreement.

[6] Although the respondent has, during the course of the trial, rather obliquely alluded that it had been coerced into signing the Funding Agreement, it did not challenge the validity of that agreement, and neither did it adduce any evidence in substantiation of that assertion. The parties’ relationship was accordingly regulated by both agreements, and I am constrained to give effect to the terms and conditions contained therein.

[7] The JBCC Agreement defined the employer as being the Department and the contractor as being Grinaker LTA LTD.

[8] The contract sum was R59 417 491, 33, inclusive of VAT. It was based on a priced bill of quantities and subject to the Standard System of Measuring Building Works (6th edition).

[9] Possession of the site was to be handed to the respondent within 10 working days of the commencement of the construction period.

[10] The principal agent (appointed by the Department) would have “full authority” and would be “the only person who shall have authority to bind the employer”. He was required to issue interim payment certificates each month, and the appellant undertook to pay to the respondent the amounts certified in such certificates within 21 calendar days of their issue, subject to the latter providing tax invoices for the amounts due. Failure to pay the certified amount by the due date would result in compounded interest accruing thereon, on a monthly basis and at the prescribed rate.

[11] Clause 29.2 of the JBCC Agreement provided that in the event of the Department, inter alia, failing to give possession of the site to the respondent as agreed, the latter was entitled to a revision of the date for practical completion and to an adjustment of the contract sum.

[12] In the event of a delay occurring as a result of, inter alia, the failure to give possession of the site as agreed, the respondent was required to give notice of such circumstance to the principal agent and, within 20 days, notify the principal agent of its intention to submit a claim, and to submit its claim within 60 days of the delay ceasing. Upon receipt of such a claim, the principal agent had to, within 20 days of receipt thereof, grant or refuse the claim, assess the quantum thereof and adjust the contract value accordingly.

[13] The principal agent’s authority was proscribed by the so-called “state provisions”, in terms of which the Department retained authority in respect of the powers to be exercised in terms of various clauses in the JBCC agreement. This included the clause (namely clause 29.2) which provided for an extension of the contract period and adjustment of the contract sum. That clause provided in peremptory terms that the contractor “is entitled to a revision of the date for practical completion and for which revision the principal agent shall adjust the contract value in terms of clause 32.12, are delays to practical completion caused by:

29.2.1 failure to give possession of the site to the contractor in terms of Clause 15.2.1.”

[14] Clause 15.2.1 enjoined the employer to give possession of the site to the contractor within 10 working days of the commencement of the construction period. And clause 29.7 obliged the principal agent, within 20 days after receipt of a claim, to: “29.7.1 “Grant, reduce or refuse the working days claimed; 29.7.2 Determine the revised date for practical completion in relation to the working days granted, making due allowance for the holiday period where such is noted in the schedule; 29.7.3 Identify each instance relevant sub- clause for each revision granted or give reasons for amending or refusing such claim; 29.7.4Assess a claim in terms of 29.3 in the same manner and principles as applicable to clauses 29.1 and 29.2.”

[15] To my mind, reasonably construed, these provisions guaranteed the respondent’s entitlement to compensation for any losses suffered as a consequence of the Department’s failure to give possession of the site in terms of the agreement, provided that it lodged the claim timeously and properly in terms of the contractually prescribed procedure mentioned above.

[16] There can therefore be little doubt that the abovementioned clauses also placed upon the Department, in explicit and peremptory terms, an obligation to compensate the respondent for any losses suffered as a consequence of a failure to hand over the site by the agreed date. Thus, once it had been established that the failure to give possession of the site had been due to the Department’s fault, the accounting officer was left without a discretion and could only refuse to approve the claim on the ground that the principal agent had erred in the assessment of the quantum.

[17] I also find that it is manifest that the principal agent did not have authority to give final and binding approval to a claim of this nature, it being a contractual power in respect of which the Department had retained authority. The function of the principal agent was consequently merely to investigate and assess such a claim and thereafter recommend to the Department that it either accept or refuse it. In terms of the Public Finance Management Act, No 1 of 1999, the Department would in such an event have been represented by its accounting officer, namely the Head of Department.

[18] It was common cause that the respondent was prevented from commencing with the work as a result of 500 houses being occupied, which prevented the demolition and rebuilding of the houses. The respondent gave due notice to the principal agent at the commencement of the delay on 15 January 2013. And when the delay ceased on 29 April 2013, the respondent gave further written notice to the principal agent of its intention to submit a claim in terms of clause 29.2 of the JBCC Agreement.

[19] The respondent’s claim, which was calculated in terms of the priced bill of quantities, amounted to R3 038 972, being for 80 days calculated at R37 987, 15 per working day. The principal agent eventually assessed and adjudicated the claim and recommended it for payment on 6 May 2013.

[20] On 4 October and 16 October 2014, one of the Department’s functionaries, namely Mr Dulani, prepared reports recommending payment, and on 16 October 2014 the principal agent issued an interim payment certificate. The respondent subsequently submitted its invoice in respect of the claim on 17 October 2014.

[21] When no payment was forthcoming, the respondent wrote to the principal agent complaining about that fact and requesting that payment be made forthwith. Notwithstanding that demand, the Department failed to effect payment and as a consequence the respondent’s attorneys addressed a further written demand for payment to the Department on 28 January 2015. The Department replied to that letter through its Legal Advisory Services, stating that it was “looking into the matter for possible payment date which could be before the month end of February 2015.”

[22] The respondent’s representative, namely Mr Bradford, was thereafter called to the Department’s offices to sign documents necessary for the processing of the claim. He was told that payment would be made the following week.

[23] The Provincial Treasury Department thereafter also wrote to the respondent’s attorneys advising that an “agreed to” claim in compliance with the JBCC agreement was being processed for payment by 27 February 2015.

[24] The Department’s Financial Officer, one Ms Adonis, also recommended payment on 4 March 2015. However, when the written recommendations were presented to the Department’s accounting officer, namely Mr Gaster Sharpley, he refused to approve the claim on the basis that “the quantum does not have allocation for standing time”.

[25] And on 7 April 2015, the Department’s Legal Advisory Services wrote to the respondent’s attorneys advising that the claim had not been approved because, “the invoice attached to your letter of demand does not comply with the requirements of clause 6 of the Funding Agreement.”

[26] It was also common cause that the scope of works was reduced as a consequence of some of the houses either being below the flood line, on bad terrain, or under Eskom power lines. In the event, the revised works were duly completed and the principle agent issued the Certificate of Final Completion during October 2015.

The Pleadings

[27] The respondent’s cause of action was based on the interim payment certificate issued by the principal agent on 15 October 2014 (certificate number 32) for the sum of R3 038 972. It averred that it had issued an invoice for that amount, but the appellant had failed or refused to pay.

[28] The appellant initially filed a special plea to the effect that the dispute should have been referred for arbitration, but later abandoned that plea. In addition, it pleaded that:

(a) the respondent’s claim was not for work done, but in respect of “standing time”, which was not sanctioned by the agreement;

(b) the respondent had failed to complete the scope of works in terms of the agreement; and

(c) the respondent exceeded the period in which the scope of works were to be completed, without proper authorisation.

[29] The appellant also asserted that while the respondent’s pleaded case was for work done, during the course of the trial it transpired that it claimed for “standing time”. He contended that the respondent’s cause of action had thus not been pleaded properly.

[30] In my view this contention can be dismissed out of hand. It was never in doubt that the interim payment certificate, on which the claim was based, had been issued pursuant to a claim submitted by the respondent for losses suffered as a result of the Department’s failure to give possession of the site in terms of the agreement. The appellant’s own functionaries motivated for payment on that understanding and the trial was also conducted on that basis. The appellant could consequently never have been under any misapprehension regarding the true nature of the respondent’s claim.

The evidence

[31] The respondent only called Mr Bradford, while the appellant called an array of functionaries, whose testimonies related mainly to the interpretation of the agreements. It being an established principle of our law that the construction of a written agreement must be founded upon the immutability of the written word and not in the partisan minds of the contracting parties, I deem the evidence relating to the interpretation of the agreements as irrelevant and of no probative value.

[32] As I have mentioned above, it is only the decision of the accounting officer, Mr Gaster Sharpley, and the reasons he provided for refusing to approve the claim that are relevant for an adjudication of the appeal. Thus only the common cause facts which I have summarised above are relevant for the adjudication of the lis between the parties.

[33] The following incontrovertible factual matrix had accordingly been established:

(a) the Department had failed to give the respondent possession of the site as it was contractually bound to do;

(b) the JBCC Agreement explicitly provided that in such circumstance the respondent was entitled to an extension of the contract period and adjustment of the contract price, i.e. compensation for any losses suffered as a result of the appellant’s default;

(c) the respondent had given due notice of the delay and of its intention to submit a claim and had duly submitted the claim in accordance with the contractual provisions;

(d) various departmental functionaries had recommended the claim for payment; and

(e) the accounting officer had rejected the claim based on his understanding that the agreements did not provide for “standing time”.

[34] I am therefore of the mind that the only issue that ought to have fallen for decision in the court a quo was whether Mr Sharpley’s decision was founded upon a correct interpretation of the agreement.

[35] Mr Sharpley’s reasons for rejecting the claim were recorded as follows, “Not approved. The quantum does not have an allocation for standing time. If the QS and contractor consider the municipality as liable then they should claim from the municipality. Legal must respond to the claim.”

[36] During his testimony Mr Sharpley asserted that on his understanding, even if a delay had occurred due to the Department’s fault, the respondent had no claim for losses suffered as a consequence. He asserted that contracts did not provide for “standing time” and that he felt that it was wrong to pay for such a claim.

[37] However, when during cross examination he was confronted with the explicit provisions of clause 29.2, he agreed that the respondent was entitled to be compensated for the delay caused by the Department, but asserted that the principal agent should have applied for additional funding before approving the claim.

The judgment of a court a quo

[38] Mageza J effectively found that because the appellant did not plead that the approval required by the provisions of clause 5.1.2. of the JBCC Agreement and clause 6.1.6 of the Funding Agreement could only be given by the Head of the Department and the agreements did not stipulate accordingly, coupled with the fact that other claims were paid without the latter’s approval, meant that the approval of the claim by the principal agent constituted “an obligation resulting from a payment certificate and creates a separate obligation and cause of action, independent of a contract.”

[39] I am of the respectful view that the learned acting judge erred in this regard. He failed to have regard to the fact that the causa for the respondent’s claim was founded on circumstances in respect of which the appellant had contractually reserved authority to approve claims. The principal agent has confirmed in his testimony that he did not have authority to approve claims of that nature and that he had been constrained to make a recommendation for payment to the Department.

Discussion

[40] Since Mr Sharpley’s decision and his reasons for rejecting the claim require scrutiny in order to adjudicate the lis between the parties, it is perhaps necessary first to consider the argument advanced by Ms Norman SC, who appeared for the appellant (with Mr Mtshabe SC), to the effect that his decision constituted administrative action and will accordingly remain valid and enforceable until judicially reviewed and set aside by a court of law. As a general proposition this submission is of course correct. (Oude Kraal Estates Pty Ltd v City of Cape Town & Others 2004 (6) SA 222 SCA at 241 – 242).

[41] The question arises, however, as to whether Mr Sharpley’s decision was founded upon the contractual provisions or on empowering legislative provisions.

[42] It is established law that not all decisions taken by public officials constitute administrative action. The question as to whether a particular act constitutes administrative action must be determined by scrutiny of the nature and purpose of the power exercised. The crucial question is whether the exercise of the power was in terms of the Constitution, a Provincial Constitution, or the exercise of a public power or performance of a public function in terms of any legislation. (President of the RSA and Others v SARFU and Others 1999 (10) BCLR 1059 CC, at para. 34)

[43] While the decision of an organ of state to award a contract is clearly an administrative act which would be subject to judicial review in terms of the Promotion of Administrative Justice Act, No. 3 of 2000 (PAJA), a decision to implement or refuse to implement a term of a contract is not administrative action. In Steenkamp N.O. v Provincial Tender Board, EC 2007 (3) SA 121 (CC, at para. 50, Moseneke DCJ, held that: “[o]nce the tender is awarded the state and the tenderer are no more than equal contracting parties in an imminent sale”. (See also: Korbitec (Pty) Ltd & Another v eThekwini Municipality & Another [2011] JOL 27975 (KZP, at para. 22)

[44] Mr Sharpley’s power to approve or reject a claim submitted by the respondent was founded solely on the fact that the Department had retained authority in respect of that power, and the principal agent would thus not have been authorised to make a final and binding decision. It is also trite that unless otherwise stated in the contract or by way of proper delegation, the accounting officer was the person authorised to represent the department.

[45] The decision to reject the claim was, however, on Mr Sharpley’s own admission, founded upon the contractual provisions and not some other empowering legislative provision. He asserted that he decided not to approve the claim because, in his view, the contract did not provide for “standing time”, thus clearly founding the rationale for his decision on the contractual provisions. To my mind this is a classic case of a public official acting in terms of a contractual provision and whose actions are thus not subject to judicial review in terms of PAJA. The question then arises as to whether Mr Sharpley was contractually justified in refusing the claim on the basis of his stated reasons.

[46] As I have mentioned above, there can be little doubt that the agreements explicitly provided for the respondent’s entitlement to an extension of the contract period and compensation for financial losses suffered as a result of the Department’s failure to give it possession of the site in terms of the JBCC Agreement. Upon closer scrutiny of Mr Sharpley’s testimony, it is clear that his decision was based more on some moral objection to payment for “standing time”, rather than a genuine believe that the claim was not sanctioned by the terms of the agreements. In the event, it is an established principle of our law that “a party cannot take advantage of his own fault, to the loss or injury of another”. And where a contracting party, through his or her breach, prevents the fulfilment of a contractual condition, that unfulfilled condition will be deemed to have been fulfilled against him. (Scott v Poupard 1971 (2) SA 686 (AD); Lekup Prop Co 4 (Pty) v Wright 2012 (5) SA 246 (SCA), at para. 11)

[47] Mr Sharpley’s reasoning, which was also advanced during argument by Ms Norman, was that:

(a) the funding for the project was based on allocations for individual beneficiaries;

(b) it was also based on value to be created on site and the actual construction of houses;

(c) the respondent’s claim was not based on milestones achieved and actual work done, but rather on “standing time”; and

(d) it is not in the public interest that a contractor should be paid for a “standing time”, where the contract was funded through an open tender for rectification of houses for disadvantaged communities.

[48] This argument is obviously predicated on the assumption that the claim for “standing time” did not represent genuine loss on the part of the contractor, but was merely a stratagem for undeserved financial gain at the expense of poor beneficiaries of housing subsidies.

[49] To my mind nothing can be further from the truth. Provisions aimed at protecting a party against financial losses suffered as a result of delays caused through the fault of the other party are invariably included in construction contracts. They not only serve to protect the interests of the contractor, but also that of the employer. Thus the JBCC Agreement made provision for penalties under certain circumstances if the respondent failed to execute the work timeously. When a contractor establishes site, it moves not only manpower, but also expensive machinery. Any delays that prevent it from deploying these resources and claiming compensation in terms of the contract, result in real financial losses on the part of the contractor. These can be easily quantified, in particular in a case where the contract is based on a priced bill of quantities. If an employer is exempt from the contractual responsibility to compensate a contractor for such bona fide claims, there is a real danger that contracts of this nature may never be completed successfully. Thus, if anything, public interest demand that contractors must be compensated for losses suffered as a result of the employer’s fault, where the contract so provides. The government is in no different position.

[50] During cross examination by Mr De La Harpe SC, who appeared for the respondent, Mr Sharpley was repeatedly invited to point to provisions in either agreement that preclude a claim based on “standing time”, or that the approval of such a claim was subject to the availability of further funding. Unsurprisingly, he was unable to do so because there is simply no such provisions in the agreements. Ms Norman could also not point to any such provisions and was constrained to argue on the basis of some moral objection to the payment of claims for “standing time”.

[51] The submissions that the claim had not been properly lodged in terms of the agreement and that it was out of time, are also without any merit. As I have stated above, it is manifest that the respondent gave due notice of the delay and of its intention to submit a claim. The timing of the issuing of the interim payment certificate was out of the hands of the respondent and was the sole responsibility of the principal agent.

[52] I accordingly find that the evidence has established on a balance of probabilities that:

(a) the respondent had been precluded from carrying out the works in accordance with the agreement as a result of the appellant’s failure to give it possession of the site;

(b) the respondent gave timeous notice of the delay and its intention to submit a claim in respect of the losses suffered;

(c) the principal agent duly determined the value of the claim, issued an interim payment certificate and recommended it for payment;

(d) Mr Sharley’s decision, while acting in his capacity as head of the department and accounting officer, not to approve the claim, did not constitute administrative action, but was founded on the contractual provisions;

(e) his decision was based on an incorrect understanding of the relevant contractual provisions;

(f) properly construed, the contracts provided that the respondent was entitled to an extension of the contract period and to compensation for the losses suffered as a result of the Department’s failure to give possession of the site on the due date.; and

(g) the Department was accordingly contractually obliged to pay to the respondent the amount certified for payment in interim payment certificate No. 32, issued by the principal agent on 15 October 2014.

[53] Consequently, although I respectfully disagree with the reasoning of the court a quo in the respects mentioned above, to my mind it arrived at the correct decision. The appeal must accordingly fail.

Order

[54] In the result the following order issues:

(a) The appeal is dismissed with costs, including the costs occasioned by the application for leave to appeal.

_______________________

J.E. SMITH

JUDGE OF THE HIGH COURT

I agree.

N.G. BESHE

L. FLATELA

ACTING JUDGE OF THE HIGH COURT

Counsel for appellant : Adv. T Norman SC; Adv Mtshabe SC

Attorneys for appellant : State Attorneys

c/o Whitesides

53 African Street

Grahamstown

(Ref.: Mr Nunn)

Counsel for respondent : Adv. D. De la Harpe SC

Attorneys for respondent :

Messrs Cooper Conroy Bell & Richards Inc.

c/o Huxtable Attorneys

26 New Street

(Ref.: Mr. Huxtable)