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South Africa: Supreme Court of Appeal |
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IN THE SUPREME COURT OF APPEAL
IN SOUTH AFRICA
Reportable
Case no: 543/98
In the matter between
VAN IMMERZEEL & POHL
1ST Appellant
COCCIANTE CONSTRUCTION
2ND Appellant
and
SAMANCOR LIMITED
Respondent
CORAM: Olivier, Schutz JJA, Farlam, Brand, Chetty AJJA
Date of hearing: 6 November 2000
Date of delivery: 30 November 2000
Construction
Contract - Identity of Contractor - Prescription -Knowledge of identity of
debtor- Proof of Cession - Damages claim
by employer for breach of construction
contract where work to be done on land of third party - contractor liable for
breach by nominated
sub-contractor - reduction of damages claim by amount of
unpaid retention moneys - engineer’s duty to supervise, breach of
-
whether engineer liable for breach of duty to supervise where contractor liable
for overlapping damage caused by breach of construction
contract - liability of
contractor and engineer in solidum.
JUDGMENT
FARLAM AJA
[1] This is an appeal against a decision of Joffe J sitting in the
Transvaal Provincial Division giving judgment in favour of the
respondent
against the first appellant in an amount of R973 544-48 and against the second
appellant in an amount of R1208 533-48.
A costs order was made against both
appellants jointly and severally. In paragraph 3 of its order the Court ordered
that the respondent
would not be entitled to recover more than a total amount of
R1208 533-48 from the two appellants.
[2] The respondent, Samancor Ltd
(“the plaintiff”), originally instituted action during November 1993
against a close
corporation known as Cocciante Construction CC (“the
cc”), as first defendant, and the first appellant, Van Immerzeel
and Pohl,
a firm of consulting civil and structural engineers (“the
engineer”), as second defendant.
[3] Subsequently, the plaintiff served
amended particulars of claim on the second appellant, which had been joined as
third defendant
and which it sued in the alternative to the cc. The second
appellant is a firm known as Cocciante Construction, whose sole proprietor
is
one Mario P Cocciante, who is also the sole member of the cc. In what follows
I shall refer to the second appellant as “the
firm” and to Mario P
Cocciante as “Cocciante”.
[4] The plaintiff instituted the action
as cessionary of claims which it alleged had belonged, before they were ceded to
it, to its
erstwhile subsidiary, Samancor Chrome Ltd (“the
employer”). At the end of the case the plaintiff asked for judgment
only
against the firm and the engineer.
[5] The claims in question arose
from two contracts concluded late in 1989 relating to the construction of a
water pipeline
at Steelpoort. The first contract, which was concluded in
writing in November 1989 between the employer and a party described in
the
contract as the contractor and identified as “Cocciante
Construction”, was for the construction of a waterpump installation
and a
water reticulation pipeline for the village of Steelpoort : in what follows I
shall refer to this contract as “the construction
contract”.
[6] The second contract was concluded in writing in December 1989 between
the plaintiff, which avers that it acted for its subsidiary,
the employer, and
the engineer. It was for the rendering by the engineer of all professional
services required for the supervision
of the installation of the water
reticulation pipeline and the construction of the pump station in terms of the
construction contract:
in what follows I shall refer to the second contract as
“the professional services contract”.
[7] The work required by
the construction contract was performed by a close corporation known as
Cocciante and Borsei Civil Construction
CC, the members of which were Cocciante
and one Borsei, the latter of whom in fact supervised the construction of the
pipeline and
attended the various site meetings on behalf of the
contractor.
[8] Construction of the pipeline commenced in January 1990 and
the pipeline was certified by the engineer as complete on 27 November
1990. On
24 January 1991 it was discovered that the pipeline was leaking and leaks
occurred thereafter at regular intervals.
[9] These leaks in the pipeline
were caused by corrosion which resulted from the sub-standard coating and lining
of the pipes and
the fact that the system installed to preclude corrosion by
means of cathodic protection was in the circumstances ineffective both
as
originally designed and installed and later when upgraded. The trial court
found, in my view correctly, that because of the defects
it was necessary for
the pipeline to be replaced.
[10] It was clearly established that the
external surfaces of sections of the pipeline were not properly prepared, thus
hampering
the adhesion of the coating, and that the thickness of the external
epoxy tar coating on sections of the pipeline was well below
the specification
requirements. In some places the epoxy coating was wholly absent. As far as
the internal epoxy lining of the
pipes was concerned, the middle two of six
pipes examined exhibited a total lack of adhesion and it was highly probable, as
the
trial court found, that the epoxy lining in all six pipes available for
inspection suffered from the same total lack of adhesion
as was found on the two
pipes which were inspected.
[11] It is clear on the evidence led at the trial
that the contractor was responsible (a) for the purchase and installation of the
pipeline with sub-standard coating and lining and (b) for the installation of
the initial ineffective cathodic protection system,
even though that
installation was done by a sub-contractor of the contractor, Associated
Corrosion Engineers (Pty) Ltd (“ACE”).
The upgraded cathodic
protection system was not installed by a sub-contractor of the contractor, but
by one in direct privity with the employer. However, as it was
conclusively proved that the reason the upgraded system also was ineffective was
that corrosion
was too advanced by the time the upgraded system was installed to
be prevented by any cathodic protection system, the contractor
is also
responsible for the ultimately wasted costs of the installation of the upgraded
system. Subject to certain legal contentions
advanced by him, with which I
shall deal below, counsel for the firm did not dispute the contractor’s
liability for the costs
of the installation of the upgraded system provided it
was shown (as in my opinion it was) that the corrosion was in fact too far
advanced to be prevented by the upgraded system in question.
[12] The trial
court also found that it was quite clear that the engineer failed to perform the
supervisory function that it was obliged
to perform in a proper and workmanlike
manner in terms of the professional services contract. This was because it
failed to ensure
(a) that pipes lined and coated as provided for in the
construction contract were utilised, (b) that the pipeline was electrically
continuous (as a result of which the initial cathodic protection system was
ineffective) and (c) that when the installed pipeline
was backfilled it was not
damaged by rocks and stones which should not have been included in the backfill.
The parties were agreed that the fair and reasonable cost of replacing the
pipeline amounted to R1 359 050-00.
[13] The employer paid amounts totalling
R1 377 024-50 to the contractor pursuant to payment certificates issued by the
engineer.
The plaintiff conceded that an amount of R348 264-36 had to be
deducted from this amount in respect of amounts not affected by
defective
workmanship and materials, but alleged that the resulting balance was the total
which had been paid to the contractor in
respect of defective workmanship and
materials which would not have been paid if the engineer had complied with its
obligations under
the professional services contract. Had the contractor done
its work the certificates in respect of which payment was made would
not have
been issued. The contractor not having done its work, the workmanship and
materials paid for were worthless, as the pipeline
had to be replaced.
The
plaintiff conceded that for the purposes of computing the claim against both the
contractor and the engineer an allowance had
to be made for the fact that the
pipeline installed in terms of the construction contract had been used for six
years out of the
period of 25 years for which it should have lasted.
[14] The
damages awarded against the firm, as contractor under the construction contract,
were made up as follows:
Agreed replacement cost of pipeline,
multiplied
by 19 and divided by 25 to allow for use of def-
R1 033 182-00
ective pipeline for 6 years
Fair and
reasonable costs of remedial work car-
ried out to the pipeline
while it was in use R 175 351-48
____________
R1 208 533-48
[15] The damages awarded against the engineer were made up as follows:
Total of amounts wrongly certified in res-
pect of defective workmanship and materials, R781 857-72
multiplied by 19 and divided by 25 to allow for
use of defective
pipeline for 6 years
Fair and reasonable costs of remedial work
R175 351-48
carried out to the pipeline while it was in use
The engineer’s supervision costs paid by the em- R 16
335-28
ployer in respect of remedial work
__________
R973 544-48
[16] It is convenient to deal with the firm’s appeal first.
Mr Delport, for the firm, advanced six main contentions, viz.:
that the trial court should have found that the contractor in terms of the construction contract was the cc and not the firm;
that if the contractor was indeed the firm, then the claim against it had prescribed before it was joined in the proceedings and the plaintiff’s amended particulars of claim were served upon it;
that any claim that the employer may have had against the firm was not validly ceded by it to the plaintiff;
that the employer in any event did not suffer any damage as a result of any breach of the construction contract so that there was nothing to cede;
that ACE was not the firm’s sub-contractor, with the result that the firm was not liable for ACE’s defective work, and
(6) that the trial court erred in not deducting from the damages
awarded to the plaintiff against the firm the
retention money
retained by the employer under the construction contract which
amounted to R62 974.
Who was the contractor?
[17] In
support of the contention that the contractor which entered into the
construction contract was the cc, and not the firm, Cocciante
Construction,
Mr Delport submitted that the identity of the parties to a contract
should be regarded as forming part of the terms of the contract and that
the
starting point has to be the contents of the contract as a whole. He pointed
out that ex facie the contract the contractor was Cocciante Konstruksie
for whom Cocciante signed as “Direkteur”.
[18] This he
submitted, was a clear indication that the contracting party on whose behalf
Cocciante had signed was a juristic person.
He contended further that evidence
was admissible to show which juristic person Cocciante had acted for, namely
evidence as to the
background circumstances in existence at the time the
contract was concluded. Among these circumstances were the facts that the
firm
is not a juristic person and Cocciante was not the director of a company but was
the sole member of the cc, which is a juristic
person. Another factor relied on
by Mr Delport was the fact that the performance guarantee provided to the
employer in terms of clause 26 of the construction contract was given
in respect
of the obligations of the cc and not the firm. It was further contended on
behalf of the firm that the only evidence
that was admissible to show on whose
behalf Cocciante signed the construction contract consisted of the terms of the
contract read
as a whole and the background circumstances in existence at the
time. He submitted that evidence of what happened some time after
the contract
was concluded was inadmissible.
[19] In my view it is clear that the trial
court correctly found that the firm and not the cc was the contractor. It is
not necessary
to decide whether Mr Delport’s submissions regarding
the admissibility of some of the evidence which might be regarded as bearing on
the question of the identity
of the contractor are correct, because even if one
approaches the matter on the lines contended for by him, viz that one can
only look at the wording of the contract read as a whole and the background
circumstances, one is led ineluctably to
the conclusion that the firm was the
contractor.
[20] The construction contract clearly reflects the contractor as
“Cocciante Construction”, the name of a firm which existed
and was
known to the engineer, who prepared the tender documents for the employer and
assisted it to choose the contractor, as being
the name under which Cocciante
traded. This in itself is the end of the matter. But if one is to go further,
in
the tender documents Cocciante, by way of setting out his experience,
referred to seven contracts, all of which were performed by
the firm and none of
which was performed by the cc. Mr Delport endeavoured to answer this
point by saying that the reason for this was that the guiding mind behind the cc
was Cocciante’s.
That may be so but the seven contracts were clearly not
contracts which the cc could correctly claim as part of its previous contracting
experience.
[21] It will be recalled that construction of the
pipeline commenced in January 1990. According to the financial statements
of
the cc it “commenced trading operations on 1 March 1990". Cocciante was
unable to explain how the cc could have started
constructing the pipeline two
months before it commenced operations.
[22] Clause 11 of the tender document
required an authorising resolution to be lodged with the tender if the tender
was submitted
by a company. If the tender had been submitted by a legal person,
as contended by the firm, one would have expected a resolution
of the cc to have
been submitted together with the tender. No resolution was in fact
submitted.
[23] As far as the performance guarantee was concerned, this
document was drafted by the Standard Bank of South Africa Limited and
not by the
contractor or the employer and no evidence was adduced that the bank was
specifically requested to issue the guarantee
on behalf of the cc. In any event
it constituted performance of the contract, not part of its
formation.
[24] The only point advanced by Mr Delport on this part of
the case which might operate in the firm’s favour is the fact that
Cocciante signed the construction contract
as “Direkteur”. He was
not in fact a director of any company at the time but was the sole member of the
cc and the proprietor
and person in charge of the firm. Does the use of the
word “Direkteur” indicate, despite the factors mentioned above,
that
he was contracting on behalf of a legal person and not in respect of his firm?
I think not. The word “direkteur”
is defined as follows in Die
Afrikaanse Woordeboek: “1. Hy wat ander persone of hul
handelinge lei of beheer; bestuurder, hoof, toesighouer, superintendent: ...
2. Lid van ’n liggaam van persone wat die sake van ’n
bedryf, onderneming of ’n instelling bestuur; lid van ’n
direksie”. Similar definitions appear in the Concise Oxford Dictionary
in respect of the word “director”,viz.: “superintendent,
manager, esp. member of managing-board of commercial company”.
It is thus
clear that the word used by Cocciante can have a meaning which will apply in
circumstances where a legal person is not
necessarily involved. Nor does the
word point toward a corporation in the form of a close corporation, which has
members and not
directors. In the circumstances I am satisfied that the first
point argued on behalf of the firm is without
substance.
Prescription
[25] In its replication to the defence of
prescription the plaintiff pleaded , inter alia, that if it were found
that prescription in respect of its claim would normally have begun running more
than three years before the
firm was joined in these proceedings, it and/or the
employer did not have knowledge of the identity of the firm as the debtor and
could not by the exercise of reasonable care have acquired such knowledge before
the filing of the engineer’s plea to its particulars
of
claim.
[26] This replication is based on sections 12(1) and (3) of the
Prescription Act 68 of 1969, as amended, which as far as is material,
read as
follows:
“(1) Subject to the provisions of subsection...(3), prescription shall commence to run as soon as the debt is due.
(3) A
debt shall not be deemed to be due until the creditor has knowledge of the
identity of the debtor .... : Provided that a creditor
shall be deemed to have
such knowledge if he could have acquired it by exercising reasonable
care.”
The question to be considered is: could the plaintiff, by
exercising reasonable care have ascertained that the contractor under the
construction contract was the firm at some stage more than three years before
the firm was brought into the case? (Whether the relevant
stage is when the
firm was joined as a defendant or had served on it the amended particulars of
claim is immaterial on the facts
of this case.)
[27] In my view it
must be accepted that when summons was issued the plaintiff believed that its
debtor was the cc. If it had been
in doubt as to the identity of its debtor at
that stage it is overwhelmingly probable that it would have sued the firm in the
alternative
to the cc. If it was reasonable in believing at that stage that its
debtor was the cc, then it could not have been unreasonable
in not knowing that
the true debtor was the firm. This Mr Delport readily
conceded.
[28] It is accordingly appropriate to consider how it came about
that the plaintiff sued the cc and not the firm when summons was
issued in
November 1993.
[29] I have already mentioned that the performance guarantee
was given in respect of the obligations of the cc. This appeared to
indicate
that Cocciante had instructed the bank that the cc was the contractor.
[30] On 22 July 1991, after the pipeline had failed, a meeting was held
at which the position in regard to the pipeline was discussed.
Amongst those
attending were three representatives of the engineer, and Borsei and Cocciante
on behalf of the contractor. Two
days after the meeting, on 24 July 1991, the
engineer wrote to “Cocciante Construction”, referring to the meeting
which
had taken place on 22 July 1991, and gave instructions in terms of clause
49 of the General Conditions of Contract for certain corrective
measures to be
taken.
On 1 August 1991 the engineer wrote a further letter, this time to
“Messrs Cocciante Construction”. They referred to
their previous
letter of 24 July 1991 and said:
“We consider 14 days sufficient time to start remedial work. This implies that you will re-establish on site on 5th August 1991. Should you fail to do so we will have no alternative but to give you notice of seven days and thereafter invoke clause 49(4) of the General Conditions of Contract. This implies that the employer (or his contractor) may effect the necessary repairs at your cost.
...”
[31] On the same day one PG Woodard, wrote the following letter to the engineer:
“Dear Sirs,
RE: SAMANCOR FERROCHROME (PTY) LTD. CONSTRUCTION OF A MAIN WATER SUPPLY LINE FOR STEELPOORT EXTENSIONS I AND II : CONTRACT NO. ANX2/S3/31/152/JAT.
CATHODIC PROTECTION.
I am writing to you on behalf of Cocciante Construction (Pty) Ltd [sic: there is no such company].
Arising out of the present problems being experienced on this pipeline due to an alleged failure of the cathodic protection system, I will be grateful if you would supply me with any information and data which you have in your possession, such as resistivity surveys or proposals which you may have made in the past concerning the cathodic protection system.
...”
This letter was sent to the engineer by facsimile transmission. The cover sheet contained the following message:
“Herewith letter written on behalf of Mario Cocciante. Please phone me at your earliest convenience.”
[32] After a meeting took
place on 5 August 1991 between Woodard and the engineer, Woodard wrote as
follows to the engineer on 7 August
1991:
“Dear Sirs,
Re: Cocciante Construction cc / Steelpoort Pipeline.
1. I am writing to you on behalf of Cocciante Construction cc, by whom I have been engaged to assist with the resolution of issues which have arisen on this contract.
2. I thank you for meeting with me on 5 August 1991, and for making certain documents available.
3. You have served notice that Cocciante should re-establish on site today to carry out certain repair and/or additional work, failing which you will serve a further 7 days notice and then invoke the provisions of clause 49 (4) of the GCOC.
4. My client regrets that it was not possible to re-establish on site today. He reports that the issues concerning contractual relationships and liability are complex, and are not capable of resolution without taking advice from their Attorneys. This is presently being done and a further response will be made to you as soon as possible.”
[33] Further letters were
written by Woodard to the engineer on 11 August 1991 and 21 August 1991, in both
of which he referred to
the construction contract and stated that he was writing
on behalf of the cc. In the letter of 21 August 1991 he said that the cc
would
not be returning to the site pursuant to a letter written by the engineer in
which it reiterated its instruction in terms
of Clause 49 of the General
Conditions of Contract that corrective measures on the coating and lining of the
pipeline be proceeded
with.
[34] In the circumstances I am satisfied that the
plaintiff was reasonable in thinking, after that exchange of correspondence and
in view of the representations made by Woodard, that the contractor was the cc.
It follows that it was not unreasonable in not knowing
that the real contractor
was the firm.
[35] In its original plea the engineer did not plead to
paragraph 3 of the plaintiff’s particulars of claim (in which it was
alleged, prior to the joinder, that the construction contract was concluded
between the employer and the cc) on the flimsy ground
that the allegations
therein did not apply to it. In other words the employer’s consulting
engineer, who had acted on its
behalf in concluding the contract, did not
challenge the allegation as to who the contractor was.
[36] In a request
for further particulars for trial the plaintiff asked the engineer which
allegations, if any, it denied in, inter alia, paragraph 3 of the
particulars of claim. In its reply to this request, dated 10 February 1995, the
engineer replied that the plaintiff
did not require these particulars for the
purposes of preparing for trial, but added that, as appeared from the
construction contract
which was annexed to the particulars of claim, the
contract had been concluded with the firm and not with the cc. Until this
warning
note was sounded the position seems to me to have been that if the
plaintiff had sought to find out who the contractor was, the performance
guarantee would have told it the cc, the employer’s consultant would have
told it the cc and Cocciante himself would have told
it the cc.
[37] This
reply by the engineer caused the plaintiff to reconsider its position and to
conduct certain further enquiries which led
to its applying to join the firm as
the third defendant and, after its application was successful, to serve amended
particulars of
claim on it. As less than two years elapsed from the time the
particulars for trial to which I have referred were received by the
plaintiff
and the joinder of the firm and the service on it of the amended particulars of
claim I am satisfied that the firm’s
special plea of prescription cannot
succeed.
Was the employer’s claim ceded to the
plaintiff?
[38] On 28 June 1991 the plaintiff and the employer entered
into an agreement in terms whereof the employer sold its business as an
indivisible whole and a going concern to the plaintiff. Included in the
business so sold (in terms of clause 3.3.5 of the agreement)
were “the
claims of the seller on the effective date against debtors in respect of the
business (‘the debts’)”.
Clause 7 of the agreement provided
that the “business” would be delivered to the plaintiff on the
effective date and
that delivery would include (in terms of clause 7.3)
“the cession by the seller [the employer] to the purchaser [the plaintiff]
of the debts”. In terms of clause 1.2.3 “the debts” mean
“the debts referred to in clause 11".
[39] Clause 11 of the agreement is in the following terms:
“11. DEBTS
In regard to the debts-
11.1 the purchaser undertakes to send out monthly statements and follow up
letters in accordance with the procedure hitherto
adopted by the seller
in order to recover the debts;
11.2 if any person who is a
debtor in respect of any of the debts incurs a debt to the
purchaser
in respect of the business after the effective date, any
payments made by such debtor shall, in the absence of an appropriation
by him, be allocated to the oldest debts;
11.3 the cession
of the debts shall incorporate any claims which the seller has
against the sureties
for those debts and all its rights in respect of security
for those debts.”
[40] On 30 September 1993 a further agreement,
headed “Cession” was concluded between the plaintiff (described
therein
as “the Cessionary”) and the employer (described therein as
the “Cedent”). It reads as follows:
“1. RECITALS;
It is recorded:
1.1
On 28 June 1991 the Cedent sold to the Cessionary as an indivisible whole and as
a going concern the business of the Cedent
(‘the 1991 agreement’)
comprising, inter alia, the claims of the Cedent as at 1 June 1991
against debtors in respect of the business of the Cedent (‘the
claims’).
1.2 The 1991 agreement did not expressly provide for the actual cession in respect of the claims sold in terms thereof.
2.
CESSION;
In as much as the rights and obligations in respect
of the claims may perhaps not yet have passed effectively from the Cedent
to the
Cessionary pursuant to the 1991 agreement the Cedent hereby, and in execution of
the 1991 agreement cedes, transfers and makes
over to the Cessionary the
Cedent’s right, title and interest in and to the claims including any
claim which the Cedent had
against COCCIANTE CONSTRUCTION CC and/or VAN
IMMERZEEL & POHL.
3. ACCEPTANCE;
In as much as
the right, title and interest in and to the claims may perhaps not yet have
effectively passed from the Cedent
to the Cessionary, The Cessionary hereby
accepts the cession.”
[41] Mr Delport contended that the
expression “debts” in the June 1991 agreement only referred to trade
debts and he relied in particular
on the provisions of clause 11 of the
agreement from which he submitted it was clear that the word “debts”
related to
trade debts and not to claims for damages arising from breach of
contract
He submitted that the plaintiff could not rely on the cession of
September 1993 because it was clear that it was entered into “in
execution
of the 1991 agreement” and if that agreement only related to trade debts
the claim ceded in terms of the 1993 agreement
could not include a claim for
damages. He submitted further the cession referred in terms to a claim against
the cc and/or the engineer
but did not mention the firm.
[42] In my view
there is no substance in this point. It is clear in my opinion that the parties
to the 1991 agreement intended that
all the assets of the employer should be
transferred to the plaintiff. It is inherently unlikely that they would have
intended the
employer, which was otherwise to be an empty shell, to retain its
claim against the appellants and any other damages claim it might
have but
nothing else.
In the circumstances I am satisfied that the employer’s
claim against the firm passed to the plaintiff pursuant to the delivery
referred
to in clause 7.3 of the June 1991 agreement.
Did the employer suffer
damage?
[43] The contention is that the employer did not suffer damage
because the portions of land over which the pipeline was built did
not belong to
the employer (except for one portion which momentarily belonged to it on 3
February 1993 before it was transferred
to the plaintiff). All the portions of
land over which the pipeline was built belonged to the plaintiff by the time
action was instituted
but this is not relevant in the present case because the
plaintiff’s action is based solely on the claims ceded to it by the
employer.
[44] Mr Delport, relying on ISEP Structural Engineering &
Plating (Pty) Ltd v Inland Exploration Co Ltd 1981 (4) SA 1 (A), submitted
that our law does not recognize a claim for damages as an alternative remedy to
specific performance
and that the respondent’s claim against the firm is
accordingly subject to the ordinary rules for the assessment of damages,
with
the result, so it was submitted, that it was incumbent on the plaintiff to prove
that the patrimonium of the employer had been
diminished as a result of the
defective pipeline, which it had failed to do.
[45] Clause 49 of the General
Conditions of Contract (to which the engineer referred in its letter to Woodard
quoted in paragraph
[30 ] above) provided, as far as is material, as
follows:
“49. (1) (a) ... [T]he expression ‘Period of Maintenance’ in these Conditions shall mean the period of maintenance named in the Tender, calculated from the date of completion of the Works certified by the Engineer ... and in relation to the Period of Maintenance the expression ‘the Works’ shall be construed accordingly.
...
(2) To the intent that the Works shall at or as soon as
practicable after the expiration of the Period of Maintenance be delivered
up to
the Employer in as good and perfect condition (fair wear and tear excepted) to
the satisfaction of the Engineer as that in
which they were at the commencement
of the Period of Maintenance, the Contractor shall execute all such work of
repair, amendment,
reconstruction, rectification and making good of defects,
imperfections, shrinkages or other faults as may be required of the Contractor
in writing by the Engineer during the Period of Maintenance ...
(3) All such
work shall be carried out by the Contractor at his own expense if the necessity
thereof shall in the opinion of the Engineer
be due to the use of materials or
workmanship not in accordance with the Contract or to neglect or failure on the
part of the Contractor
to comply with any obligation expressed or implied on the
Contractor’s part under the Contract. ...
(4) If the Contractor shall
fail to do any such work as aforesaid required by the Engineer, the Employer
shall be entitled to carry
out such work by his own workmen or by other
contractors, and, if such work is work which the Contractor should have carried
out
at the Contractor’s own cost, the Employer shall be entitled to
recover from the Contractor the cost thereof...”
[46] It is
thus clear that the construction contract gave the employer the right to claim
from the firm the cost of re-executing work
in respect of which the firm’s
work did not comply with the contract.
[47] The ISEP decision has been
subject to severe criticism: see, eg, De Wet and Yeats, Die
Suid-Afrikaanse Kontraktereg en Handelsreg, 5de uitgawe, 212. The point
was, however, not argued before us. It is not necessary to decide on the
correctness of the criticism
in view of the fact that the decision is in my view
distinguishable because in this case the employer (unlike the lessor in ISEP)
had a contractual right to claim payment of money, ie, reimbursement for
re-execution work done by another, in lieu of specific performance of that work
by the contractor.
Did the employer, not being the owner of the land,
suffer damage?
[48] Mr Delport further submitted that the
employer could not have recovered damages from the contractor in this case
because it had suffered no
loss as it was not the owner of the land on which the
pipeline was built.
[49] In my view on the application of ordinary principles
of the law of contract Mr Delport’s submission on this point must
be rejected. Among the interests protected by remedies for breach of contract is
the interest which
an aggrieved party has in the performance of the contract.
The guiding principle of our law on this point was stated by Innes CJ
in a
well-known dictum in Victoria Falls & Transvaal Power Co Ltd v
Consolidated Langlaagte Mines Ltd 1915 AD 1 at 22 as follows:
“The sufferer by ... a breach [of contract] should be placed in the position he would have occupied had the contract been performed, so far as that can be done by the payment of money, and without undue hardship to the defaulting party.”
There is accordingly no merit in Mr
Delport’s submission on this part of the case.
Was ACE
the second appellant’s sub-contractor?
[50] Mr Delport
conceded that in order for his client to escape a finding that it was in breach
because of its failure to instal an effective cathodic
protection system the
court had to find that ACE was not a sub-contractor of the firm.
[51] In
regard to the question whether ACE was a sub-contractor of the firm it is
necessary to refer to clause 61(1) of the General
Conditions of Contract, which
reads as follows:
“61. (1) All specialists, merchants, tradesmen and others executing any work or supplying any goods for which provisional or prime cost sums are included in the Schedule of Quantities, who may have been or be nominated or selected by the Employer or the Engineer and all persons to whom by virtue of the provisions of the Schedule of Quantities or Specification, the Contractor is required to sub-let any work shall, in the execution of such work or the supply of such goods, be deemed to be sub-contractors employed by the Contractor and are herein referred to as ‘nominated Sub-Contractors’. Provided always that the Contractor shall not be required by the Employer or the Engineer or be deemed to be under any obligation to employ any nominated Sub-Contractor against whom the Contractor shall make reasonable objection or who shall decline to enter into a sub-contract with the Contractor containing provisions:
(a) that in respect of the work or the goods, the subject of the
sub-contract, the nominated Sub-Contractor will undertake to the
Contractor the
like obligations and liabilities as are imposed upon the Contractor to the
Employer by the terms of the Contract and
will hold harmless and indemnify the
Contractor from and against the same and from all claims, demands, proceedings,
damages, costs,
charges and expenses whatsoever arising out of or in connection
therewith or arising out of or in connection with any failure to
perform such
obligations or to fulfil such liabilities and
(b) that the nominated
Sub-Contractor will hold harmless and indemnify the Contractor from and
against:
(i) failure of the sub-contract works if and where the design
of the works was undertaken by the nominated Sub-Contractor,
(ii) failure of the goods if and where the goods were manufactured and/or
supplied by the nominated Sub-Contractor;
(iii) any negligence by the
nominated Sub-Contractor, his agents, workmen and servants;
(iv) any mis-use by the nominated Sub-Contractor of any Constructional Plant,
Temporary Works, or Materials provided by the Contractor
for the purposes
of the Contract; and from
(v) any claims as
aforesaid.’”
[52] Mr Delport submitted that the firm
was not afforded the opportunity to object to the appointment of ACE or to
require it to enter into a sub-contract
with the provisions referred to in
paragraphs (a) and (b) of clause 61 (1).
[53] The difficulty one has with
that submission is that Borsei, who, as I have said, supervised the construction
of the pipeline
and attended the site meetings, was not called as a
witness.
It appears from the evidence that ACE was initially engaged by the
engineer to carry out a corrosion survey on the pipeline. The
field work for
the survey was completed in July 1990 and ACE presented its report to the
engineer on 12 September 1990.
[54] A site meeting was held on 13 September
1990 attended by Borsei at which the test report was handed to him and it was
stated
that ACE would be appointed to do the work.
On 18 September 1990 the
engineer sent a memorandum to ACE which read as follows:
“We refer to your report CP4266 dated 12/09/90:
1. We accept your recommendations and quotation as stated in the report. You must go ahead with the work as stated under points 1-5 of section 6 of the report. We would expect the work to be completed within 4 weeks, as stated.
2. You will be appointed on the contract . The main contractor is Coccianti and Borsei, and all claims for payment must be submitted to them.”
On 26 September 1990 a further site meeting
was held at which it was stated that ACE had been appointed and that the work
which had
started on 24 September seemed to be finished.
[55] It thus appears
that Borsei knew five days beforehand that ACE was to be appointed. He had the
opportunity to object and to
request ACE to enter into a sub-contract as
described in paragraphs (a) and (b) of clause 61 (1) of the General
Conditions.
It follows that the firm’s contentions on this part of the
case also must be rejected.
Conclusion regarding the firm’s
liablility
[56] In the circumstances I am satisfied that the
firm’s appeal must be dismissed with costs, including those occasioned by
the employment of two counsel.
Liability of the
engineer
[57] Counsel for the engineer conceded that the parties to the
construction contract were the firm and the employer and that the parties
to the
professional services contract were the engineer and the employer.
[58] In
their heads of argument counsel for the engineer contended that on a proper
interpretation of the professional services contract
the engineer’s duty
of supervision only extended to such supervision of the contract as was required
to enable it to satisfy
itself that the pipeline was properly placed in position
in accordance with the construction contract, but that it had no obligation
, so
it was contended, to see to it that each of the pipeline’s constituent
parts was manufactured in a workmanlike manner
in accordance with its relevant
specifications.
[59] When the matter was argued in this court it was conceded
that the duty of supervision as contended for in the heads of argument
was too
narrowly stated and that the engineer had been obliged also to supervise the
execution of the construction contract but,
so it was contended, evidence was
required, which had not been led, as to the extent of the supervisory duties
which customarily
rest on consulting civil engineers in circumstances such as
were present in this case. It was accordingly submitted that the trial
court
should instead of granting judgment against the engineer have absolved it from
the instance.
[60] The professional services contract is contained in two
documents, a “Purchase order” sent by the plaintiff, acting
on
behalf of the employer, to the engineer and a letter from the engineer to the
plaintiff in which the engineer acknowledged the
receipt of the purchase order
and set out the fees which would be payable to it under the
contract.
[61] The Purchase order described the professional services to be
rendered as follows:
“The provision of all professional services required for the supervision of the installation of the water reticulation pipe line, and the construction of the pumpstation by Coccianti construction for Steelpoort Village in accordance with Contract Nos. ANX 2/53/31/152 and ANX 2/54/31/152.”
(The italics are
mine.)
[62] Contract No ANX 2/53/31/152 was the construction contract.
Clause 4 of the Samancor General Conditions forming part of it reads
as
follows:
“QUALITY
The goods shall be of the qualities and
sorts described and equal in all respects to the Specifications, Samples and
Drawings specified
in the Order, or in the documents relating to the Order.
Should there be no description or Sample exhibited, the goods shall be
the best
of their respective kind and shall be to the satisfaction of the
Purchaser.
All materials and workmanship shall be as specified and/or
first-class quality. Any materials considered faulty or incorrectly or
badly
erected or fixed shall be substituted, altered or changed at the discretion of
the Purchaser, at the Seller’s sole expense.
In the absence of anything
to the contrary in the Order, all Materials and Workmanship shall comply with
the appropriate British Standard
Specification/s or SABS specification/s or such
other International Standard/s as may be accepted for purpose of the order by
the
Purchaser.
Electrical work shall comply with the requirements of the
latest issue of the South African Institute of Electrical Engineers Regulations
applicable to the installation as well as all Local Authority By-Laws and any
requirements for the local Supply Authority.”
[63] It is clear in
my view, on a simple interpretation of the contract, that the engineer was
obliged to examine the quality of the
materials delivered to the site. This
included a duty to examine the pipes on site to ascertain whether the surface
of the pipes
had been prepared in accordance with the relevant specification
before the coatings and linings were applied. This examination could
according
to the uncontested evidence easily have been done. If it had been done,
millscale which was on the surface of the pipes
would have been
detected.
[64] The engineer’s duties also included, in my view, an
obligation to examine the pipes on site to ascertain whether the specifications
regarding dry film thickness were complied with. This could also easily have
been done. If this had been done the specified coating
and lining thicknesses
would have prevented, or at least have inhibited, the corrosion
process.
[65] It was also clear on the evidence that the first cathodic
protection system, which was installed by ACE, failed because electrical
continuity, as required and provided for in the specifications, was not
effected. Inter alia, twenty couplings which should have been installed
were not and the zinc anodes specified were either not supplied or were not
properly
attached or electrically bonded to the pipeline. No explanation for
the engineer’s failure to pick up this clear deviation
from the
specifications was forthcoming.
[66] Another breach of the construction
contract by the firm which should, and could easily, have been picked up by the
engineer,
related to the fact that sections of the pipeline were extensively
mechanically damaged during its installation because the contractor
did not
comply with the contract specifications regarding bedding material for the
individual pipes and during the backfilling process
stones and rocks were dumped
onto the pipeline causing it to be damaged.
At one stage during the argument
counsel for the engineer was asked whether there was any evidence at all of what
his client had done
by way of supervision : no answer was forthcoming. This
comes as no surprise in the case of an engineer whose first line of defence
was
that his duties of supervision were of a most attenuated kind.
[67] It is
accordingly clear, in my view, that the engineer certified defective workmanship
and materials as if there had been compliance
with the contract specifications
and it failed to take reasonable steps to ensure that the construction work was
carried out in a
proper and workmanlike manner and in accordance with the
contract specifications.
[68] I am accordingly satisfied that the engineer
failed to perform its supervisory function in a proper and professional manner
and
that it failed to take reasonable steps to ensure that the construction work
was performed in accordance with the provisions of the
construction contract.
In my opinion it has also been established that the engineer breached the
implied terms of the professional
services contract by issuing monthly payment
certificates and a completion certificate in respect of defective work and
materials
provided by the firm. If those breaches had not occurred the employer
would not have paid the firm for defective workmanship and
materials (which were
useless to the employer) and it would also not have paid for additional remedial
work, which was recommended
by the engineer and which was also valueless in the
result.
[69] In regard to the amount of the damages claimable by the
plaintiff from the engineer two main submissions (plus a further submission
relating to the retention money to which I have referred above) were raised on
appeal by counsel for the engineer.
[70] The first relates to the way in
which the quantum of the plaintiff’s claim against the engineer was
computed. The amount
the plaintiff claimed, and was awarded by the court a
quo as damages against the engineer, comprises the total amount of the
payment certificates issued by the engineer in respect of the pipeline
(which,
it will be recalled, proved to be wholly defective and required replacement),
plus the expenditure incurred by the employer,
on the advice of the engineer, in
attempting to remedy the defects that manifested themselves. From this amount
were deducted the
costs of items which were either not defective or were not
rendered valueless. The amounts in respect of such items formed part
of the
final certificate issued by the engineer. The judge in the court a quo
took the figures which he deducted under this head from the summary of the
opinions of one of the plaintiff’s experts, one
Venter, who did not
testify at the trial. Counsel for the engineer criticised the judgment of the
trial court on this point and
submitted that in view of the fact that neither
Venter nor any other expert testified on this point there was no basis for
calculating
the deduction, which would mean that the quantum of the damages was
uncertain.
[71] I do not agree with this criticism. In my view counsel for
the plaintiff were correct in submitting that the plaintiff was entitled
to use
the actual amounts certified by the engineer itself in respect of items which
were, on the evidence, not affected by the
defects and which did not require
replacement.
[72] The final point argued by counsel for the engineer was that
inasmuch as the plaintiff has a claim for damages against the firm
and does not
allege that the firm will not be able to satisfy the judgment in favour of the
plaintiff that has been given against
it in this case, it has not been shown
that any loss has been suffered at this stage in consequence of negligent
supervision or certification
by the engineer, because a judgment has been given
against the firm for the full amount of the loss, which judgment may well be
satisfied.
[73] At the moment, so it was submitted, there exists merely a
possibility that what were called “prospective damages”
will be
suffered should the judgment against the firm not be satisfied in full.
Consequently, so it was argued, the plaintiff’s
action against the
engineer was premature and should have been dismissed with costs.
[74] It was
also argued that the engineer was not liable to the plaintiff because it was not
foreseeable that the employer would suffer
any loss as a consequence of the
negligent issue of interim certificates. In this regard an attempt was made to
draw a distinction
between the negligent issue of a final certificate as opposed
to an interim one. The basis of the submission is the conclusive nature
of a
final certificate issued in terms of clause 64 of the General Conditions of
Contract, whereas overcertification in an interim
certificate can be adjusted in
a later certificate and eventually finally put right in the final
certificate.
[75] In my view no question of foreseeability arises nor can it
be said that the plaintiff’s claim against the engineer is
premature.
[76] The correct position is that the engineer and the firm are
independently liable for the same or similar damage. The plaintiff’s
causes of action against them are separate and independent based upon two
separate if inter-connected contracts.
[77] It is interesting to note that
the position in English law in a case such as this is set out as follows in
Hudson’s Building and Engineering Contracts, 11th
edition, by I N Duncan Wallace QC, at pp 230-1:
“...(C)ases of true joint liability, whether in tort or contract, are comparatively rare. Far more commonly in construction projects two or more persons may be independently liable, whether in contract or tort, for the same (or similar) damage. A classic example in contract would be the liability of the contractor to the owner for defective work, and of the A/E [architect or engineer] for a failure to detect or prevent it while supervising. The causes of action are separate and independent, and in some cases, including the above, the measure of damage may be very different... In the case of both joint and several claims, the remedies at common law were extremely primitive .... Individual several defendants in contract would be liable to judgment for the whole loss, whether sued separately or not, and such a party’s only defence, either at trial or on execution of judgment, was to prove that the plaintiff had already ‘realised’ or satisfied his judgment through payment by or execution against the other party.”
(The
reason for the use of the past tense in the passage quoted from Hudson
(“the remedies at common law were extremely primitive”) is
that the position in English law has to some extent been ameliorated by the
Civil Liability (Contribution)
Act (c.47) of 1978 which extended the effect of
the Law Reform (Married Women and Tortfeasors) Act (25 and 26 Geo.5, c.30) [Part
II of which is the counterpart of Chapter II of our Apportionment of Damages Act
34 of 1956] to actions in contract.)
[78] Counsel for the respondent referred
to the judgment of Judge Fay QC, sitting to conduct Official Referees’
business, in
Hutchinson v Harris, a case where a building owner sued an
architect for, inter alia, defective supervision, reported on appeal at
(1978) 10 BLR 19. In the commentary to the Court of Appeal judgment at 10 BLR
22-3 the
following quotation is given from Judge Fay’s judgment:
“But as to the factor of Mr Bishop’s work [the builder’s work], Mr Walker submits that if the defendant was negligent in supervision or certifying, no damage is recoverable because the fault is Mr Bishop’s and the plaintiff has not shown that Mr Bishop is unable to pay them. He elicited the fact that Mr Bishop is suing the plaintiff in the County Court for the balance of his account and that the plaintiff is counterclaiming against him in respect of this defective work. He points out that in Sutcliffe v Thackrah [1974] AC 727; 4 BLR 16], which I have mentioned, where the architect was responsible for the builders’ negligence, the builders were insolvent. This is an interesting argument but not I think a valid one. It seems to be bereft of authority. But where the duty of a contracting party is to supervise the work of another contracting party, it seems to me there is a direct casual connexion between the supervisor’s negligent failure to prevent negligent work, and the damage represented by that negligent work. No doubt the builder is also liable. It is a case of concurrent breaches of contract producing the same damage. In my judgment the plaintiff has an action against both, although she cannot obtain damages twice over.”
[79] In my view
it is important to bear in mind that we are not concerned in this case with the
question as to whether the engineer,
if it compensates the plaintiff for the
damage that has been suffered, will have a claim of some kind for an indemnity
from the firm.
On the facts of this case overlapping damage was caused to the
employer by two independent breaches of contract. I am aware of
no legal
principle which compels a plaintiff in a case such as this to excuss, as it
were, one contract breaker before suing or recovering
compensation from the
other.
[80] In my opinion the principle laid down by Judge Fay QC in
Hutchinson v Harris, supra, is correctly reasoned and in accordance with
the principles of our law. See for the analogous position in delict Nedcor
Bank Ltd t/a Nedbank v Lloyd-Gray Lithographers (Pty)Ltd, (an unreported
decision of this Court, case 257/1998, delivered on 8 September
2000).
[81] It follows that, subject to the making of the necessary deduction
in respect of the retention money, the order made by the trial
court was
correct. At the hearing of the appeal counsel were agreed that an amount of R62
974 should be deducted from both awards,
in respect of retention
moneys.
[82] The following order is made:
The appeals of both appellants
are dismissed with costs, including those occasioned by the employment of two
counsel, save that the
order of the court below is altered by the substitution
of the amount of R910 570 for the amount of R973 544-48 in paragraph 1 and
the
substitution of the amount of R1 145 559 for the amount of R1 208 533-48 in
paragraphs 2 and 3.
I G Farlam AJA
CONCUR
OLIVIER, JA
SCHUTZ, JA
BRAND, AJA
CHETTY, AJA
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