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Amalgamated Construction Company (Pty) Ltd v City Council of City of Durban (61/87) [1987] ZASCA 59 (27 May 1987)

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IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

1987-05- 29 In the matter between:

AMALGAMATED CONSTRUCTION COMPANY

(PROPRIETARY) LIMITED appellant

and

THE CITY COUNCIL OF THE

CITY OF DURBAN respondent

Coram: Corbett, Hoexter, Grosskopf, JJA, Nicholas et Boshoff AJJA.

Date of appeal: 18 May 1987

Date of judgment: 27 May 1987

JUDGMENT CORBETT JA:

During the period April 1979 to February 198l

/ appellant,

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appellant, Amalgamated Construction Company (Pty) Ltd ("Amalgamated"), entered into a series of eight building contracts with the respondent, the City Council of the City of Durban ("the Council"). In terms of each of these contracts Amalgamated undertook to construct a specified number of dwelling units on land provided by the Council. The contract in each case comprised a number of documents, including one called "General Conditions of Contract" and another named "Special Conditions of Con-tract". At a certain stage in the execution of these contracts a dispute arose between the parties in regard to the proper interpretation to be placed upon the pro-visions in the Special Conditions of Contract relating to the payment of liquidated damages by the contractor (Amalgamated) for delay in the completion of the con-tract work. Amalgamated accordingly launched an appli-cation on notice of motion in the Durban and Coast

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Local Division for a declaratory order setting forth its (i.e. Amalgamated's) interpretation of the relevant pro-visions of the eight contracts. The application was opposed by the Council and in an opposing affidavit by the City Engineer, filed by the Council, the latter's interpretation is set forth. The matter came before WILSON J who held that the Council's interpretation was the correct one and dismissed the application with costs. WILSON J thereafter granted Amalgamated leave to appeal to this Court against the whole of his judg-ment and order. That appeal is now before us.

Since the relevant contractual provisions are the same in all eight contracts, the appropriate contract documents relating to only one contract (numbered B.5778) were put before the Court a quo. The parties accept-ed that an interpretation placed on these documents would hold good for the other seven contracts as well.

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Contract B.5778 provides for the construction of 352 dwelling units. The dispute hinges on clauses 1 and 2 of the Special Conditions of Contract. I quote these in full;-

"1. (a) TIME FOR COMPLETION:
Time is the essence of this contract and the Contractor will be required tocomplete the buildings and site works and hand over to the Corpora-tion progressively in batches.
For this purpose the 352 dwellings comprising this contract will be subdivided as follows:-
12 (twelve) batches of 21 dwelling units each.
5 (five) batches of 20 dwelling units.
Whilst the Engineer reserves the right to change and direct where such batches shall be erected in various periods of the Contract, the following shall be adhered to:-

(i) The first batch comprising a total of 21 dwellings shall be handed over complete

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within 45 (forty-five) weeks from a date which shall be specified in a letter from the City Engineer in-structing the Contractor to take over the site on such specified date.

(ii) The remaining 16 (sixteen)

batches comprising 331 dwellings shall be handed over at a rate of one batch per week from the due date for comple-tion of the first batch.

(iii) The total of 352 dwellings

is then handed over complete within 61 (sixty-one) weeks.

Extension of this time will not be permitted by virtue of any holidays other than Building Industry Holidays whether statutory or recognised generally as customary in the industry, which intervene between the date specified in the letter and the due date for completion.

(b) MAINTENANCE PERIOD

The period for which the Contractor shall be responsible for maintaining the works after practical completion in terms of Clause 10 of the General Conditions of Contract shall be six months after the completion certificate has been issued except

/ that

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that in the case of electrical work
the period shall be twelve months from the date of completion.

2. LIQUIDATED DAMAGES FOR DELAY:

(a) If the Contractor fails to proceed with and complete the Works in the manner required by the contract within the period fixed by Clause 1 (a) (or within any extended time granted in terms of Clause 9 of the General Conditions of Contract) the Council shall be entitled to require payment from the Contractor of the amounts shown in Clause (c) below as liquidated damages for each and every day by which the completion of the Works is delayed beyond the date fixed as aforesaid, and such damages may be deducted by the Council from any monies due to the Contractor; provided that nothing contained in the Clause shall prevent the Council from exercising against the Contractor any other reme-dies which may be available to it either in terms of this contract or at common law, or from electing to recover from the Contractor any damage or loss sustained by it in consequence of any breach of contract in lieu of enforcing its rights to liquidated damages in terms of this Clause.

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(b) If before the completion of the
whole of the Works, any part of
the Works has been certified by
the Engineer as completed in terms

of Clause 10 of the General Conditions of Contract and occupied or used by the Council, the liquidated damages for delay shall for any period of delay after such certification be reduced in the proportion which the value of the part so certified bears to the value of the whole of the Works.

(c) The following are the amounts of
liquidated damages applicable:-

(i) In the case of the Terraced House Type T5 R2,22 per Dwelling Unit per day

(ii) In the case of the Terraced House Type T5A Rl,82 per Dwelling Unit per day

(iii) In the case of the Terraced House Type T6A R2,56 per Dwelling Unit per day

(iv) In the case of the Semi-Detached House Type SD4A Rl,45 per Dwelling Unit per day

(v) In the case of the Semi-Detached House Type SD5B Rl,85 per Dwelling Unit per day

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(vi) In the case of the Semi-Detached House Type SD5D Rl,60 per Dwelling Unit per day (vii) In the case of the Duplex Housing Unit Type DP4A Rl,38 per Dwelling Unit per day

(viii) In the case of the Duplex Housing Unit Type DP5A1 Rl,65 per Dwelling Unit per day

(ix) In the case of the Flats

Type F3A R0,88 per Dwelling Unitper day

(x) In the case of the Flats

Type F3C R0,86 per Dwelling Unit per day

(xi) In the case of the Flats

Type F4A Rl,05 per Dwelling Unit per day

(xii) In the case of the Flats

Type F4B Rl,21 per Dwelling Unit per day

For each day on which the building remains incomplete after its stipu-lated date of completion:

R25,96 in addition for each day on which the whole of the Works remains incomplete after the stipu-lated date of completion."

/The

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The declaratory order asked for by Amalgamated, as set forth in the notice of motion, reads:

"It is hereby declared that upon a proper construction of the contracts concluded between the parties hereto and numbered B.5767, B.5778, B.5948, B.5949, B6065, B6066, B6070, B5766 liquidated damages are payable in terms of clause 2 of the Special Conditions of Contract only if the completion of the total number of dwelling units included in the contract is delayed beyond the due date for the completion of the works, as defined in the contract, and the quantum of such liquidated damages must be calcu-lated in the prescribed manner from that date."

The Council's viewpoint is summed up in the following

paragraph in the affidavit of the City Engineer:

"It is the Respondent's contention that, on a proper construction of Clauses 1 and 2 of the Special Condi-
tions of Contract (read in their

/ context)

10
context), the Respondent is entitled to deduct penalties in respect of failure by the Applicant to complete any speci-fic batch of dwellings by the date stipulated therefor under Clause l(a)."

In my opinion the Court a quo correctly rejected the
interpretation contained in the declaratory order
and correctly accepted the contrary interpretation
put forward by the Council. My reasons for reaching
this conclusion are the following:

A reading of clauses 1 and 2 of the Special

Conditions of Contract reveals certain prominent fea-
tures of the contract. The first is that time is of
the essence of the contract: this is expressly stated
in the opening words of clause 1; and what is obviously
referred to is the time of completion by the contractor
of the building work. The second feature is the
sanction imposed where the contractor delays and fails
to complete the work in the stipulated time, viz.
liquidated damages. And the third prominent feature

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is the fact that, in terms of clause 1, the contractor
is required to complete the buildings and site works
and hand over to the Council "progressively in batches".
To this end the 352 dwellings are divided into 17
batches, 12 batches of 21 dwelling units each and 5
batches of 20 dwelling units each and a completion date

(to be calculated from a date specified by the City Engi-
neer) is designated for each batch (see clause l(a)(i)
and (ii). In addition, a completion date for all 352
dwellings is stated. This is within 61 weeks of

(inferentially) the specified date, this period of 61
weeks representing the total of the periods allocated for
the completion of each of the batches (see clause l(a) (iii) ).
This is all perfectly clear.

Clause 2(a), which creates the obligation to pay liquidated damages for delay is, however, less happily worded. It commences by postulating the contractor's

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failure to proceed with and complete the works "within the period fixed by clause l(a)" and then imposes upon the contractor a liability to pay liquidated damages in the amounts shown in clause l(c) for every day by which the completion is delayed "beyond the date fixed as afore-said". The words which 1 have quoted, particularly "period" and "date" (in the singular), would seem to suggest that there is only one date from which liquidated damages may run; and it was upon the strength of this, inter alia, that it was argued on behalf of Amalgamated that in terms of clause 2 liquidated damages were payable only if the completion of all 352 dwellings was delayed beyond the period fixed in clause l(a)(iii) of the Spe-cial Conditions of Contract. Counsel for Amalgamated, Mr Welsh, also laid stress upon the use of the word "Works" in clause 2(a). "Works" is defined in clause l(j) of the General Conditions of Contract and it is clear from the

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opening words of clause 1 that this definition applies

to the use of the word in all the contract documents. The first (and relevant) portion of the definition

reads:

"The term 'Works' shall mean the works
described and shown in the Contract
Documents and any such further Drawings,
Directions and Explanations as may from
time to time be given to the Contractor
by the Engineer "

Relying upon this definition, counsel argued that where
the word "Works" is used in clause 2(a) of the Special
Conditions of Contract it means the whole of the works,
i.e. all 352 dwellings, and nothing less.

In my view, these arguments cannot prevail. In clause 2(a) the liquidated damages to be paid are de-scribed by reference to clause 2(c). Clause 2(c) clear-ly provides for two sets of liquidated damages: (1) damages in various stipulated amounts (depending on type of building) for each day on which an individual dwelling

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(or building) remains incomplete after "its stipulated date of completion" (my emphasis); and (2) "in addition" damages in a globular amount for each day on which the whole of the works remains incomplete after "the stipulated date of completion". The stipulated date of completion un-der (1) above clearly refers to the date by which the batch of dwellings, of which the individual dwelling forms part, is required to be completed in terms of clause l(a)(i) and (ii) - for convenience I shall call this date "the batch date"; and the stipulated date of completion under (2) above equally clearly refers to the completion date stipulated in clause l(a)(iii). These are the dominant provisions in regard to the payment of liquidated damages and they specifically and unambiguously express the intention of the parties in regard thereto. In my opinion, they override whatever inconsistency there might be in the general words used in clause 2(a). Mani-

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festly they contradict the interpretation which Amalgamated seeks to place upon the contract in relation to the obli-gation to pay liquidated damages and support the inter-pretation advanced on behalf of the Council.

In addition, there are, in my opinion, a number of other considerations which reinforce the view that liquidated damages were intended to be paid in res-pect of both delays beyond the batch date in the comple-tion of individual dwellings and delays in the completion of the whole of the works beyond the date fixed for the hand over of all 352 dwellings.

It is clear from the context that the purpose of dividing the work up into batches and of providing for the progressive hand over of completed batches by specified dates was to enable the Council to arrange for the allocation and occupation of the dwellings as the batches were completed. This appears from the

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express wording of clause 9 of the Special Conditions of Contract which is headed "BATCHING SCHEDULES" and commences with the words -

"In order to allow the Corporation to arrange for the allocation and occu-pation of the dwellings as the batches are completed, the Contractor will be required, at the commencement of the Contract, to furnish a batching schedule

in terms of Clause 1 (a) "

From this it is to be inferred that time was to be of
the essence both as to the completion of batches and as
to the completion of the work as a whole. In the cir-
cumstances it seems very probable that the sanction of
liquidated damages would have been intended to apply not
only to delays in the completion of the work as a whole,
but also to delays in the completion of batches; and
per contra it seems unlikely that the intention was to

confine the sanction to delays in the completion of the

work as a whole.

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By reason of the aforegoing the reference to "period" (singular) in clause 2(a) must be read as meaning any one of the periods fixed by clause l(a); and similarly the word "date" in the same clause must be read as the date.representing the terminal day of the particular period under consideration. Thus interpreted, these words are not inconsistent with the construction which I have placed on clause 2 as a whole. Nor do I think that the word "Works" in clause 2(a) presents any real problem. In terms of the definition the word "Works" can, in my view, be used to denote the whole of the contract works or a specific portion thereof, such as a batch of dwellings. And it is of some significance that in certain clauses of both the General Conditions of Contract (see e.g. clauses 4(a) and (10) and the Special Conditions of Contract (see e.g. clauses 2(b) and 2(c) ), where the whole contract works are referred to, expressions such as

/"all

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"all the works", "all works", and "whole of the works" are used.

Mr Welsh also placed some reliance on clause 10 of the General Conditions of Contract, headed "Completion and Maintenance", the relevant portion of which reads:

"The Contractor shall deliver the works
to the Engineer in a clean state and
complete in every particular. When the
works are practically completed the Engi-
neer will give a Completion Certificate and
the date of such completion certificate will
denote the commencement of the Maintenance
Period. The Contractor shall maintain and
keep in good order and repair all works
under the Contract for the period stipula-
ted in the Special Conditions of Contract,
after Completion Certificates have been
issued "

His argument was that this clause indicates a single completion date when a completion certificate is issued viz., when the whole works are complete, and that, therefore, there could be no liquidated damages payable

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before this. This argument is partially refuted by clause 10 itself, which, as the concluding words of the quoted portion show, seems to contemplate the issue of more than one completion certificate. It is fully refuted, to my mind, by the terms of clause 2(b) of the Special Conditions of Contract, which provides for the certification by the Engineer as complete of "any part of the Works" in terms of clause 10 of the General Con-ditions of Contract (see also clause 24 of the Special Conditions of Contract, which contemplates a final inspec-tion by the Bngineer of the buildings in a batch or sec-tion of the works).

Mr Welsh furthermore referred to two amend-ing agreements entered into between the parties. The first of these ("the first amending agreement") was entered into on 4 December 1980 and it amended the Special Conditions of Contract in relation to two of the

/ contracts

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contracts by the substitution of a new clause l(a). The relevant portion of the new sub-clause reads:

"Time is of the essence of this contract and the contractor will be required to com-plete the buildings and site works and hand them over to the Corporation progressively in batches in accordance with a programme annexed hereto marked "A". The said programme shall relate to a co-ordinated progression of work under this contract and also under contract B6065 or B6066 (as the case may be), it being a condition of this contract that any failure on the part of the contractor to complete the build-ings and site works and hand over the same to the Corporation progressively in batches in accordance with the said programme as extended from time to time by the Engineer in accordance with the other provisions of this contract shall, if the Engineer in his sole discretion so directs, be deemed to constitute a delay in respect of this contract for the purposes of clause 2 hereof."

The second ("the second amending agreement") was entered into on 1 December 1982. It, inter alia, varied the original agreements in the following way —-

/ "The

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"The respective periods stipulated in terms of Clause l(a) of the Special Conditions of Contract read with Clause 4(a) of the General Conditions of Con-tract of each of the said Contracts for the completion and hand-over of the total number of dwellings under the said Contracts,shall, for the sole purpose of the determination of liquidated damages in terms of Clause 2 of the Special Conditions of Contract of each of the said Contracts, be amended so as to expire on the following dates, respec-tively:"

(then follow stipulated dates for each of the contracts).

Amalgamated's introduction of these amending agreements as part of the record was initially unenthu-siastic. In the founding affidavit Mr Goodson, Amalga-mated's managing director, stated that in his opinion they were not relevant for the purpose of interpreting clause 2 of the Special Conditions of Contract, but were included because he believed that the Council did not subscribe to this view. In his opposing affidavit the

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City Engineer did not dispute this, but added that he had
been informed that it was a question of law as to whether
the contents of either amending agreement were relevant
to the interpretation of the original contracts. In his
replying affidavit Mr Goodson was non-committal on this
topic, but shortly before the hearing in the Court a quo
he deposed to a supplementary affidavit, the material
portion of which reads:

"In paragraph 11 of the founding affi-davit I expressed the opinion that neither the first nor the second amending agreement is relevant for the purpose of determining the mean-ing and effect of clause 2 of Respon-dent's Special Conditions of Contract. I am now advised and respectfully submit that both the first, and more especially the second amending agreements are so relevant. At the hearing of this appli-cation submissions will be made to this effect on behalf of the Applicant."

It was submitted by Mr Welsh that the portion of the first amending agreement quoted above showed that the

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parties placed a common interpretation on clause 2 of the Special Conditions of Contract in the original contracts consistent with the construction advanced by him and that accordingly on the basis of the principle set forth, for example, in MTK Saagmeule (Pty) Ltd v Killyman Estates (Pty) Ltd 1980 (3) SA 1 (A), at p 12 F-H, this fact could be used in the interpretation of clause 2. It is clear from the authorities, including the one just cited, that this aid to construction may be invoked only in the case of ambiguous documents. In my view, there is no such ambiguity in clause 2 and consequently reference to the first amending agreement is neither necessary nor justifiable. I might add that, in any event, I am un-able to discern in the quoted portion of the first amend-ing agreement any such common interpretation as was sug-gested by counsel.

As to the second amending agreement, Mr Welsh's

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argument, as I understood it, was that this agreement was relied upon not in order to show a common interpretation (as in the case of the first amending agreement) but in order to establish that the parties amended clause 2 of the Special Conditions of Contract in such a way as to eliminate the payment of any liquidated damages for delay in the completion of batches of dwellings and to confine the payment of such damages for delay in the completion of the contract as a whole. This argument was advanced in the alternative and on the basis that Amalmated's interpretation of the original contract was incorrect.

I do not think that it is open to Amalgamated to advance this argument. As I have shown, it initially regarded this amending agreement as irrelevant and only at the eleventh hour relied upon it as being relevant "for the purpose of determining the meaning and effect"

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of clause 2 of the Special Conditions of Contract. Had
Amalgamated timeously made the averment that the second
amending agreement changed the effect of clause 2 in
the manner suggested, I have no doubt that evidence would
have been placed before the Court a quo of the circum-
stances under which the second amending agreement came to
be entered into. And such evidence might well have been
relevant to the interpretation of the second amending agree-
ment. In any event, I am quite unpersuaded that the se-
cond amending agreement did alter clause 2 in the manner
suggested. When pressed, Mr Welsh conceded that the
alteration came about by way of necessary implication.

I fail to see any such implication; and furthermore it

is to be noted that in the preamble to the second amending

agreement it is stated -

"AND WHEREAS the parties have now agreed to conclude further contracts relating to the aforesaid works, such further contracts to incorporate all of the

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respective terms and conditions of the said Contracts, mutatis mutandis save as hereinafter expressly varied."

(My emphasis.)

Por these reasons I hold that the Court a quo rightly dismissed the application.

The appeal is dismissed with costs, including the costs of two counsel.

M M CORBETT

HOEXTER JA) GROSSKOPF JA) NICHOLAS AJA) CONCUR. BOSHOFF AJA)