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IN THE HIGH COURT OF SOUTH AFRICA

KWA-ZULU NATAL DIVISION, PIETERMARITZBURG

 

CASE NO: AR35/18

 

In the matter between:

 

ABAJABULI PROJECT SERVICES CC                             Appellant

(Plaintiff in the Court a quo)

 

and

 

UTHUKELA DISTRICT MUNICIPALITY                         Respondent
                                                                                                   (Defendant in the Court a quo)

Coram: Koen, Ploos van Amstel JJ et Jikela AJ

Heard: 21 June 2019

Delivered: 1 July 2019

 

ORDER

On appeal from the High Court of South Africa, KwaZulu-Natal        Division, Pietermaritzburg (Poyo-Dlwati J sitting as the court of first instance):

1        Paragraph (a) of the order of the court a quo is amended to read as follows: '(a) Itis declared that the termination by the defendant of the service agreement between it and the plaintiff was procedurally in accordance with the terms of clauses 3.1.2 and 9.2.1.3.3 of the General Conditions of Contract for Construction Works (2010) published by the South African Institute of Civil Engineering.'

2        The appeal is otherwise dismissed with costs.

JUDGMENT

Koen J (Ploos van Amstel J et Jikela AJ concurring):

 

Introduction:

[1]          This is an appeal against paragraph (a) of the order of the court a quo which determined that:

'The termination by the municipality of the services agreement between it and the plaintiff was lawful and in accordance with the terms of the GCC agreement entered into between the plaintiff and the municipality'.

In what follows in this judgment the plaintiff/appellant shall be referred to as 'the contractor', the respondent as 'the municipality', and the services agreement simply as 'the contract'.

[2]          The contractor was the successful tenderer in respect of a contract for the construction of bulk water gravity mains and associated infrastructure, reservoirs and other appurtenant works ('the works'). It contends that while the works were in progress, the municipality terminated the contract unlawfully, as a result of which it suffered damages in an amount exceeding R15 million, which appears to have been the contract price. In addition it claims damages for the loss of certain equipment allegedly left behind on the site and which it was prevented from removing.

 

The issue separated for determination

[3]          The issues of quantum and liability were previously separated by an order granted during the case flow management of the action. At the commencement of the trial, an order was granted at the request of the parties, separating a further issue in respect of the question of liability, for determination before all other issues. During argument on appeal a dispute arose as to what was separated for determination. This again demonstrates the importance of the formulation of any agreement to separate issues being clear and specific as to not leave the parties and the court in any doubt as to what had to be determined.

[4]          Mr Masenya for the contractor submitted that the issue separated was that which he identified in his opening address to the learned trial judge. The record reflects that he said:

'What is in dispute, M'Lady, is the termination of the service agreement primarily in twofold. The first fold is that the service agreement between the parties was procedurally incorrect given the provisions of clause 9.2 of the service agreement and the second one is that the termination was not lawful, in other words the defendant terminated the service agreement unlawfully.

Now the parties have agreed, M'Lady, to proceed just on one aspect, which is the first one, being that whether the termination of the service agreement was procedurally correct given the provisions of the service agreement, particularly clause 1.2[1] of the agreement.'

 

[5]          When regard is had to the relevant provisions of the agreement quoted below, the above statement by Mr Masenya would mean that the issues separated for determination were whether there was a decision by the engineer that the contractor had defaulted in its obligations in terms of the contract, whether the engineer then certified to that effect, whether the contractor was then on that basis placed on terms to remedy that default, whether it remedied that default, and if not whether the contract was then cancelled. Whether the contractor had indeed defaulted in its obligations as determined and certified by the engineer would not be an issue before the court a quo, but would stand over for determination at a later stage.[2] If the issue separated is confined to Mr Masenya's understanding as set out above then much of the evidence adduced, such as the contractor's explanation of problems it experienced and which allegedly caused the delays, was probably irrelevant. Such evidence would be irrelevant to the issue whether the engineer had issued a certificate only after consultation with the parties or as otherwise contemplated in terms of the contract. It would however be relevant to a determination of the issue whether the engineer was correct in his decision that the contractor had defaulted, but that issue Mr Masenya contended, remains an issue for determination on another day. The ambit of the evidence adduced and permitted does not however provide a conclusive answer. By the very nature of litigation evidence adduced and permitted often stray beyond what might in retrospect have been strictly relevant, and it would be unfair to level any criticism in that regard.

[6]          Mr Goddard SC for the municipality stated the following at the outset of the trial: '... by consent the issue of liability is further separated, so that the Court deals only with the issues pleaded in paragraph 6.1 to 6.12 of the particulars 5 and 6 of the plea and the replication.'

In his concluding argument before judgment was reserved before the court a quo Mr Goddard however stated:

'It was not raised earlier and that is that page 125 of the pleadings, paragraph 7 of the plea, the defendant says that in the alternative if there was an un-procedural termination then the defendant claims that there was a repudiation by the plaintiff. So that issue would still have to go to trial, even if there was an un-procedural termination.'

During argument before us he however contended that the issue whether the engineer was correct in concluding that the contractor was in default of his obligations, apart from the procedural issues resulting in such a determination, were indeed issues before the trial court.

 

[7]         

There is some support for Mr Goddard's view to be found in how the trial was conducted and in the terms of the order which was eventually granted. The learned trial judge ex facie her order determined that the termination of the contract was lawful and in accordance with the terms of the GCC agreement. During the course of her judgment she referred inter alia to the contractor having been 'unable to perform its obligations in accordance with the contract' which would be a consideration relevant to the issue whether the engineer was correct in deciding that the contractor had defaulted in its obligations in terms of the agreement and issuing a certificate to that effect. Her finding that the termination was lawful seems to extend to the contract and its cancellation as a whole, rather than being confined to only the legal technical enquiry whether the procedure adopted was correct. In the latter event the relief should possibly, more appropriately, have been couched in the form of a more specific declaratory order.

[8]          The above conflict and uncertainty require that the issue separated be determined first. What that issue was, or the issues were, must be decided on the basis of the terms of the court order which was granted when the separation was directed. The record revealed that after having been addressed by both counsel, the learned trial judge said:

'Yes, I make the order in terms of the draft order by consent'.

No draft order was included in the appeal record prepared by the contractor. Mr Masenya annexed a draft order to his heads of argument. Upon specific enquiry Mr Goddard confirmed that this document was indeed a copy of the draft order granted by the trial judge. Paragraph 3 thereof records:

'3. THAT by consent, the issue of whether the termination of the service agreement was in accordance with the terms of the agreement, as pleaded in paragraphs 6.1 to 6.1.12 of the particulars of claim, paragraphs 5 and 6 of the plea and the plaintiffs reply is to be decided separately, in terms of Uniform Rule 33 (4) from any other question and that all further proceedings are to be stayed until such question has been disposed of.'

As with any other court order, the consent order must be interpreted in accordance with the accepted principles of interpretation.

 

The issue for determination as identified by the pleadings:

[9]          The particulars of claim are not a model of clarity and contain allegations of fact intermingled with details of evidence. It however became common cause that the contract was concluded and subsequently terminated by the municipality. It is also common cause that the terms and conditions of the contract included those embodied in the General Conditions of Contract for Construction Works (2010) published by the South African Institute of Civil Engineering (the 'GCC').

 

[10]       Paragraph 6.1 to 6.12 of the particulars of claim read:

'6.1 Defendant breached and unlawfully terminated Plaintiffs contract as detailed below:

6.1.1       Contrary to clause 9.2.1.3 of the Conditions of Contract, copies of which are herewith attached and marked ANNEXURE APS 06, Defendant failed to give a proper Notice to Plaintiff to remedy the default prior to termination of the contract.

6.1.2       In this regard reference is made to Defendant's letter of the 25^th March 2013 which clearly fails to give Plaintiff the necessary notice to remedy the default within 14 days as required by clause 9.2.1.3 of the Conditions of Contract and accordingly Defendant breached Plaintiffs contract, see a copy of the letter attached herewith and marked ANNEXURE APS

07

6.1.3       It was a material term of the contract that prior to Defendant terminating Plaintiffs contract, the Engineer, namely Sakuma Engineers must have certified the alleged default in writing to both the Plaintiff and Defendant in terms of clause 9.2.1.3 of the conditions of contract.

In this regard, Defendant's letter of the 25 March 2014, contrary to clause 9.2.1.3 of the conditions of contract also preceded the certificate by the Engineer/Sakuma Engineers as aforesaid and accordingly Defendant breached the contract.

6.1.4       Defendant's letter of the 25 March 2013 is clearly misleading and without any truth and merit in that it refers to the Defendant concurring with the opinion of Sukuma Engineering when in fact reference to paragraph 5.2 of the minutes of the site meeting held between the parties on 5^th March 2013, clearly indicates that it was not the opinion of Sukuma Engineers but that of the Defendant in that the Defendant instructed Sukuma Engineers to commence the process of terminating Plaintiffs contract, see copies of the minutes herewith attached and marked ANNEXURE APS 08.

6.1.5       Defendant has since demonstrated unjustified and baseless desperation to terminate Plaintiffs contract through a series of un-procedural and unlawful termination letters contrary to clause 9.2 of the Conditions of Contract as detailed below as follows:

6.1.6       Defendant's letter of the 31st July 2013 which threatened to tenminate Plaintiffs contract in terms of clause 9.2 of the conditions of contract on the basis of the opinion by Sukuma Consulting, which opinion Plaintiff never received and was not aware of, see a copy thereof herewith attached and marked ANNEXURE APS 09

6.1.7       Defendant's letter of the 21st August 2013 which failed to afford Plaintiff an opportunity to remedy the default within 14 days, but effectively and summarily ordered Plaintiff to evacuate the development site, see a copy thereof herewith attached and marked ANNEXURE APS 10.

6.1.8       Defendant's letter of the 21st August 2013 terminated Plaintiffs contract in terms of clause 9.2.1.3.7, on the ground that Plaintiff "furnished inaccurate information in the returnable documents completed at a tender stage and forming part of the contract"

6.1.9       Defendant withdrew its letter of the 21 August 2013 on the 29 October 2013, but persisted in its conduct of terminating Plaintiffs contract and effectively continuing to bar Plaintiff from entering the site, see Defendant's letter addressed to Plaintiffs Attorneys of record Messers Masenya & Associates, copies of which are herewith attached and marked ANNEXURE APS 11.

6.1.10   Defendant's second letter of the 29 October 2013 addressed to Plaintiff, which letter (i) withdrew Defendant's letter of the 21 August 2013, (ii) terminated Plaintiffs contract in terms of GCC 2010 Clauses 9.2, sub clauses 9.2.1.3.3 and 9.2.1.3.5, see a copy thereof herewith attached and marked ANNEXURE APS 12.

6.1.11   Defendant's letter of the 29 October 2013 addressed to Plaintiff referred to Defendant's letter of the 30 July and all its termination letter and or its notice to Plaintiff "lo remedy the default within 14 days" when in fact there was no such letter and or notice.

In this regard, see a copy of the letter from Plaintiffs attorneys of record, Masenya & Associates to Defendant requiring a copy of Defendant's letter of the 30 July as well as a letter from the Defendant confirming that no such letter existed, copies of which are herewith attached and marked ANNEXURE APS 14 and ANNEXURE APS 15 respectively.

6.1.12   Thus, Defendant's termination of the Plaintiffs contract in terms of Defendant's letters dated the 25 March 2013, 31'1 July 2013, 21'1 August 2013 and 29 October 2013 was not only un-procedural and contrary to the relevant terms of the Conditions of Contract but was also unlawful.'

 

[11]       Nothing material to this appeal turns on the contents of paragraph 5 of the plea. Paragraph 6 of the plea reads:

'Without limiting the generality of the foregoing denial, but merely in amplification thereof, the defendant pleads:

(a)          That on or about 8 March 2013 alternatively 30 July 2013 the engineer certified that the plaintiff had failed to commence, proceed with or execute the works, as contemplated in clause 9.2.1.3 of the Conditions of Contract, as appears from a copy which is annexed, marked Plea 1 alternatively Plea 2;

(b)          On or about 30 or 31 July 2013 the defendant gave written notice to the plaintiff to remedy the default, in accordance with clause 9.2 of the Conditions of Contract, as appears from annexure "APS9" to the particulars of claim;

(c)           On or about 29 October 2013 the defendant terminated the contract in terms of clause 9.2, sub-clauses 9.2.1.3.3 and 9.2.1.3.5, as appears from annexure "APS12" to the particulars of claim.'

 

[12]       The relevant parts of the replication read as follows:

'2. AD: PARAGRAPH 6 (A) THEREOF

2.1          The contents of this paragraph are contradictory at best especially when considered with reference to paragraph 6.1.1 of the particulars of claim in that Annexure Plea 1 alternatively Plea 2 attached thereto, refers to an Opinion as (alleged) by SUKUMA CONSULTING ENGINEERS in their (SUKUMA) letter of the 8 MARCH 2013 but not a "Certificate" as required by Clause 9.2 of the Conditions of Contract,

2.2          Plaintiff denies having received the aforesaid letter of the 8 March 2013 at any material stage before the 25 March 2013 when same was faxed by Defendant.

Defendant concedes receiving the aforesaid letter for the first time only on the 25^th March 2013 but even so, disputes that the aforesaid letter constituted one in accordance with the terms of the contract (Clause 9.2) and thus is improper and consequently invalidates the notice period of 14 days provided for by Clause 9.2.1.3 of the conditions of contract.

2.3          In the result, Plaintiff replies that it is baseless in the circumstances for Defendant to begin alleging that Annexure Plea 1 alternatively Plea 2 constituted a Certificate by an Engineer as contemplated by Clause 9.2.1.3 of the Conditions of the Contract or even an Opinion as alleged and or pleaded,

Thus Plaintiff re-iterates its stand as amplified in the particulars of claim that Plaintiff never received neither an Opinion and or a Certificate by the SUKUMA CONSULTING ENGINEERS on the 8 March 2013 alternatively on the 30 July 2013 as pleaded.

 

3.           AD PARAGRAPH 6 (B) THEREOF

3.1         Defendant appears to be in doubt as to when in fact the Notice to terminate the contract (if any, for a simple reason that same is disputed) was given to the Plaintiff, when in fact the date when the Notice was given is a material allegation and same should be properly pleaded by Defendant, but even worse, Defendant does not provide the delivery date of the aforesaid letter,

3.2         The letter (Plea 1 or Plea 2) dated the 30 July 2013 referred to herein is from SUKUMA CONSULTING ENGINEERS and not from the Defendant and Defendant could not have given Plaintiff a Notice to terminate on the basis of the aforesaid letter,

3.3         Equally, Plaintiff replies that Defendant's letter of the 31" July 2013 cannot constitute a Notice of Termination as contemplated by Clause 9.2.1.3, in that

3.1)       it is not based on the Certificate of the Engineer as required by Clause 9.2,

3.2)       it completely ignores the provisions of Clause 3.1.2 of the Conditions of the Contract which must precede the process in terms of Clause 9.2, the contents of such discussions in terms of clause 3.1.2 were recorded in the Minutes of the site meeting held on the 27 February 2013, copies of which of which are herewith attached and marked ANNEXURE APS 022, which minutes are vital for consideration before one proceeds in terms of Clause 9.2,

3.3)       ignores the changes of the relevant time periods relating to the working scope when considering issues of performance in terms of the contract even as occasioned by:

(i)                 subsequent changes in scope of work necessitated and occasioned by Defendant,

(ii)               subsequent changes as necessitated and occasioned by the Engineer (SUKUMA) when re-surveying the Contract Site and consequently re-setting out same,

(iii)             as a result of which Plaintiff was required to adjust his contract program schedule including cash flow contract schedules as was agreed in the latter minutes referred to as ANNEXURE APS 022. Copies of the resultant revised contract program schedule and contract cash flow schedule are herewith attached and marked ANNEXURES APS 023 and APS 024 respectively.'

 

[13]       The terms of particularly paragraph '3.3)' of the replication on a superficial reading might appear to introduce as issues the correctness of the decision and certificate by the engineer that the contractor was behind in schedule. Paragraph '3.3)' raises questions such as a subsequent change in the scope of work, as a result of which it is claimed the contractor was required to adjust the contract programme schedule, including cash flow schedules, which presumably would entail delays. The issue of delay was also canvassed during the evidence and it was never disputed that the contractor was behind in performance. Reading the provisions of paragraph '3.3)' in its entirety it seems that these allegations are made specific to the notice of termination being defective.

[14]       On a proper interpretation of the relevant parts of the particulars of claim, the plea and the replication, the issue separated for determination by the draft order was indeed confined to the procedural correctness of the engineer's decision, the engineer's certification and the cancellation which followed thereon. That the issue separated was this more restricted issue also appears from enquiries directed during the stage when the application for leave to appeal was argued. Although the learned judge said:

'But is it not for one to get to the issue whether there was termination, you need to deal with the issues leading to the termination. What happened before the termination. It is not in isolation'. She later stated that, '... I have not found as a fact that they did not perform ... So the issue of whether they performed or not, is that not the issue that needs still to be dealt with in another Court ... ' She concluded that, '... in my understanding the whole of the judgement and in fact some of the things that you raised in the leave to appeal is an issue for interpretation', which it could only be if the issue separated was restricted to the issue of procedural compliance. Whether the contractor was indeed behind in performing in accordance with the schedule of performance was for subsequent determination. That is the basis on which this appeal shall be approached. It will then also follow, with respect, that the order granted by the learned trial judge after having heard the evidence, should be more restricted and specific. That will be addressed after considering the merits of this appeal.

 

The terms of the agreement relevant to this appeal

[15]       To determine whether the defendant terminated the contract lawfully, it is necessary to have regard to the provisions of the GCC relevant to the issues separated for determination. These include the following:

(a)          '3. ENGINEER

3.1               Functions of the Engineer:

3.1.1       The function of the Engineer is to administer the Contract as agent of the Employer, in accordance with the provisions of the Contract.

3.1.2       Whenever the Engineer intends, in terms of the Contract, to exercise any discretion or make or issue any ruling, contract interpretation or price determination, he shall first consult with the Contractor and the Employer in an attempt to reach agreement. Failing agreement, the Engineer shall act impartially and make a decision in accordance with the Contract, taking into account all relevant facts and circumstances.'

It is common cause that the appointed engineer was Sukuma, represented in the main by Mr Maher.

 

(b)          '5.6 Programme

5.6.1       The Contractor shall deliver to the Engineer as part of the documentation required before commencement with Works execution in accordance with Clause 5.3.1, an initial programme of carrying out the Works in order to meet the Due Completion Date. Whenever the approved programme no longer reflects that actual progress will meet the Due Completion Date, the Contractor shall deliver to the Engineer an adjusted programme.

5.6.2       The initial programme and all subsequent adjusted programmes shall show and, when relevant, describe in statements, the entire scope of the work to be performed including but not limited to:

5.6.2.1 The Commencement Date, commencement of the Works, Due Completion Date, and the planned completion date,

5.6.2.2 The sequence, timing and resources for carrying out the Works,

5.6.2.3 The dates for Site accesses and possessions, approvals, instructions, inspections, tests and all information required to execute the Works,

5.6.2.4 The events influencing the execution of the Works,

5.6.2.5 Other programming information set out in the Scope of Work,

5.6.2.6 A detailed cash flow forecast, and

5.6.7   On adjusted programmes, the actual progress achieved for the various parts of the Works and the amounts paid.'

 

(c)          '9.2 Termination by Employer

9.2.1 If:

9.2.1.1 ... 9.2.1.2...

9.2.1.3            After giving effect to Clause 3.1.2, the Engineer certifies, in writing, to the Employer and to the Contractor, with specific reference to this Clause, that the Contractor: 9.2.1.3.1...

9.2.1.3.2...

9.2.1.3.3         Has failed to proceed with the Works in accordance with the approved programme or in the absence of an approved programme, in the Engineer's opinion, 9.2.1.3.4...

9.2.1.3.5         Is not executing the Works in accordance with the Contract, or is neglecting to carry out his obligations under the Contract,

9.2.1.3.6...

9.2.1.3.7         Has furnished inaccurate information in the returnable documents completed at tender stage and forming part of the Contract,

then the Employer may, after giving fourteen (14) days written notice to the Contractor, (with specific reference to this Clause) to remedy the default, terminate the Contract and order the Contractor to vacate the Site and hand it over to the Employer. The Employer rnay then enter the Site and the Works and expel the Contractor therefrom without thereby affecting the rights and powers conferred on the Employer or the Engineer by the Contract...'

 

(d)          '10. CLAIMS AND DISPUTES

10.1       Contractor's claim

10.1.1 The following provisions shall apply to any claim by the Contractor for an extension of time for the Practical Completion of the Permanent Works in terms of Clause 5.12, or in terms of any Clause that refers to Clause 10.1 additional payment or compensation:

 

10.1.1.1                 The Contractor shall, within 28 days after the circumstance, event, act or omission giving rise to such a claim has arisen or occurred, deliver to the Engineer a written claim, referring to this Clause and setting out:

10.1.1.1.1              The particulars of the circumstance, event, act or omission giving rise to the claim concerned,

10.1.1.1.2              The provisions of the Contract on which he bases the claim,

10.1.1.1.3              The length of the extension of time, if any, claimed and the basis of calculation thereof, and

10.1.1.1.4              The amount of money claimed and the basis of calculation thereof.

10.1.1.2                 If, by reason of the nature and circumstances of the claim, the Contractor cannot reasonably comply with all or any of the provisions of Clause 10.1.1.1 within the said period of 28 days, he shall:

10.1.1.2.1              Within the said period of 28 days notify the Engineer, in writing, of his intention to make the claim ...

10.1.4   If, in respect of any claim to which this Clause refers, the Contractor fails to comply with the 28 day period notice period in Clause 10.1.1, as read with Clause 10.1.2, or does not deliver his final claim within 28 days after the end of the events or circumstances, the Due Completion Date shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged of all liability in connection with the claim.

10.1.5   Unless otherwise provided in the Contract, the Engineer shall, within 28 days after the Contractor has delivered his claim in terms of Clause 10.1.1 as read with Clause 10.1.2, give effect to Clause 3.1.2 and deliver to the Contractor and the Employer his written and adequately reasoned ruling on the claim (referring specifically to this Clause). The amount thereof, if any, allowed by the Engineer shall be included to the credit of the Contractor in the next payment certificate;

Provided that:

10.1.5.1                    The said period of 28 days may be extended if so agreed between the Contractor and the Engineer, and

10.1.5.2                    Any amount that has been established to the satisfaction of the Engineer, before his ruling on the whole claim, shall be included to the credit of the Contractor in the next payment certificate.'

 

The evidence

[16]       The evidence at times strayed beyond what is covered by the above pleadings. For the sake of completeness a brief summary of the material evidence is produced below, before addressing the specific issue which was separated for determination.

[17]       Mr Jabulani Coshiwe is the 'owner and project director' of the contractor. He was the only witness for the contractor. The engineer, Mr Maher, was the only witness called by the municipality. There is little conflict in the factual content of their evidence, save for the contractor's allegation that it was locked out of the site post 31 July 2013, an aspect I shall return to later. In what follows below I shall refer mainly to the evidence of Mr Coshiwe, accompanied by some brief comments.

[18]       Mr Coshiwe testified that after receiving the letter awarding the tender on 16 October 2012, the site was handed over to the contractor on 9 November 2012 for site establishment, which took 'round about 30 days'. That period is factored in when determining the period of duration of the contract, and hence would not justify a delay in performance. He further stated that when receiving the letter of appointment, the contractor was required to submit the programme based on the start date of 9 November 2012. Civil contractors take an end of year break from 'round about' 12 December 2012, which resulted in the site being closed from 12 December 2012 until the contractor returned onto site after the holiday on 14 January 2013. When the plaintiff did its calculations as to the duration of the contract it was required to have factored in the December holiday period as well.

[19]       The first site meeting was on 30 January 2013. The project was a 'labour­ intensive project', which required the plaintiff to utilise local labour procured through a CLO (community liaising officer) identified by the municipality in conjunction with the engineer. Mr Coshiwe complained that the contractor did not receive the required number of labourers in time to meet the performance dates provided for in respect of the project because no CLO was initially appointed. The contractor projected requiring 25 workers whereas there were just under 10 when it returned to site on 14 January 2013. He also complained that the contractor could not do anything until they had their first meeting with all parties involved, being the meeting of 30 January 2013. Mr Coshiwe complained further that even at that stage the sourcing of the labour had not been completed. At the first site meeting it was minuted/reference was made to the problems with labour.

[20]       In the minutes of progress meeting number 1, on 27 February 2013, the plaintiff contractor reported certain challenges. On 6 March 2013 it was recorded in the minutes of the second site meeting that the personnel on site included the contract manager, the site agent for skilled labour, 22 unskilled labourers and the CLO. The engineer highlighted that the contractor was not performing. It was recorded in respect of the 'Program' that the 'Revised Scope of works details have been forwarded to (the contractor) for them to be able to compile an accurate programme' and that the 'Construction Program was received at the last meeting'. A revised programme in an electronic format including resources was required together with the revised cash flows following the progress meeting on 27 February 2013. The revised programme was still to be compiled and to be submitted to the engineers for approval by 11 March 2013. It was also recorded that the contractor had 'been instructed to base the excavation for the program on machine excavation and all other remaining labour-intensive activities will remain as labour intensive (bedding, backfilling, etc.), as discussed and resolved by the Caps ISO and “TDM Social Facilitation.”

The contractor reported that they were monitoring the achievement of tasks by labour in order to compile the resource component for the programme.

 

[21]       Under progress it was reported in the same minute that:

'Due to lack of progress on site the (municipality) has instructed the Engineers to put (the contractor) on terms and that the (municipality) will terminate the project should no progress or some intent to make progress be visible in 2 weeks' time.'

It was minuted that the notice according to the GCC would be forwarded to the contractor the next day. It was further recorded that the contractor was behind programme on the bedding, laying and backfilling of pipelines according to the original programme. The contractor was also behind on both the pipeline and reservoir components in terms of progress.

 

[22]       On 8 March 2013 the engineers in a letter to the contractor recorded that the engineer was concerned that 'with 14 weeks (23%) of the contract period having lapsed, the total value of work certified was only R480,532,10 or 3.6% of the total contract value'. In addition there was a lack of materials on site which would cause further delays. With reference to clauses 9.2.1.3.2, 9.2.1.3.3 and 9.2.1.3.5 of the GCC the engineers expressed the opinion that the contractor was not executing the works in accordance with the contract in that little progress had been made to implement the works and that there did not appear to be sufficient resources on site to meet intermediate requirements. It pointed out that if this was not suitably addressed within 14 days, the municipality 'may elect to cancel the contract'. Mr Coshiwe denied receiving this letter.

[23]       Following the meeting of 6 May 2013, and the above letter of 8 May 2013, a letter was addressed by the municipality to the contractor on 25 March 2013. Mr Coshiwe admitted receiving this letter. It recorded inter alia:

'We concur with the opinion of Sukuma Consulting Engineers as stated in their correspondence of 8 March 2013 that you have neglected to carry out your obligations in terms of your contract. Therefore, in terms of the provisions of clause 9.2 of GCC 2010, please be advised that the uThukela District Municipality is exercising its right to terminate the abovementioned contract effective from 14 days of the date of this communication.'

[24]       Mr Coshiwe responded to this fax in writing on 4 April 2013 complaining inter alia that it had not received funds from financial institutions due to not having a signed contract as yet, that it had problems of paying wages for the week ended 22 March 2013, that it had problems with material supplied as cessions were required prior to delivery on site and that there was some misunderstanding, and that as regards progress, an additional team with excavator was added to the three teams they had on site to catch up with time delays. He concluded by stating that the contractor 'will send a revised programme and cash flow to show how we are going to catch up with the days we have lost'. Whether such a programme and cash flow were in fact sent, was not clarified in the evidence. Mr Coshiwe commented in regard to the letter of 25 March 2013 that he was aware that there was a lack of progress. He conceded that the contractor was behind on the project.

[25]       In a letter from the engineers to the contractor dated 11 April 2013 it was noted that the contractor was making efforts to commence with scheduled activities, but that 'as discussed telephonically we will meet on Monday 10h00 at the offices of the client to discuss cash flows and materials deliveries, where after a final recommendation will be made regarding the continuation of the contract.' It was not disputed that this letter dated 11 April 2013 was received by the contractor.

 

[26]       Mr Coshiwe said he interpreted this Jetter as conveying that 'everything was fine' and that they were 'working as normal'. 'Everything' could hardly be fine in the light of the contents of the paragraph referring to a final recommendation as to the continuation of the contract still having to be made. The third paragraph of this letter also confirmed that the engineer, Mr Maher, was speaking to Mr Coshiwe telephonically and hence was consulting with the contractor from time to time.

[27]       The contract was signed on 15 April 2013. The signed contract was then taken to the funders of the contractor to provide funding. Eventually funding was received 'round about July.'

[28]       Mr Coshiwe confirmed receiving the engineers letter dated 25 April 2013, that there had been a meeting at the municipality's offices on 15 April 2013 as alluded to in that Jetter, and that he in addition had various other meetings with Mr Maher. This Jetter also recorded that,

'[on] the recommendation of the Engineer it was agreed that as the contractor was indicating intent to remedy the default, that he would be granted a one month probation period during which the progress of the Contractor was to be monitored closely to ensure that set targets were achieved'

The Jetter concluded that '[the] situation was to be reviewed by 15 May 2013'.

 

[29]       Certainly by 29 April 2013 according to the report from the LSO, the contractor accepted that it was in arrears with the programme but was 'confident that they would still complete the project on time, they had a turnaround strategy.' In a further report of the LSO it was recorded that some labourers complained that they had not been paid by the contractor. The contractor however disputed that any amounts were owing. In the words of Mr Coshiwe, 'the only thing that we were battling with in the beginning up until we got the signed contract, it was the material, the steel, but the plastic pipes we had them on site, they were delivered.'

[30]       In the fifth site meeting held on 3 July 2013 it was recorded that the contractor needed to seriously review its programme as it was then at 7.9% of the scope of work, whereas the time into the project was 50%, hence that there was 'a MAJOR amount of catching up to do'. The contractor needed 'to look at the scope and realistically program the activities with the required management, their teams and the associated labour requirements to achieve their program'. It was furthermore recorded that the contractor needed 'to also review the reservoir component and not just concentrate on the pipeline component in their programming.' Mr Coshiwe conceded that no dispute or objection was minuted to these recordals that the contractor was behind. The obligation to catch up, to submit a revised programme, to revise the cash flows, etcetera were all obligations of the contractor. The contractor failed to comply with these obligations timeously.

[31]       In regard to payment certificate number five dated 15 July 2013, Mr Coshiwe stated that he could not recall having requested payment in advance. He conceded however that at that stage the contractor was 'behind programme'. He conceded that Mr Maher was talking to him about the contractor being behind in the programme and that they had various meetings, telephone discussions and consultations, as he was also discussing it with the municipality. Mr Maher's uncontested evidence was that there were extensive consultations throughout the period of these meetings and discussions and he confirmed that the contractor acknowledged that the programme was behind. In his opinion the contractor had consistently failed to implement the works in accordance with the programme. The programmes were simply never met on time for whatever problems there may have been on site. Programmes were never achieved. Milestone expenditure targets were never achieved. The very fact that 7% or 8% of the work was only completed after half the project duration was in Mr Maher's opinion clear evidence that the contractor was not meeting his obligations.

[32]       The engineer's interactions with both were described as extensive consultations in meetings and discussions with regards to the problem of a lack of progress. The contractor was given considerable leeway and encouraged to catch up, but there was never any dispute that the progress was not in accordance with the contract. The engineer accordingly was of the opinion and determined that the contractor had failed to proceed with the works in accordance with the approved programme, or alternatively in the engineer's opinion.

[33]       In a letter dated 30 July 2013 addressed by the engineer to the municipality, and sent separately by email to the contractor at 5:22 PM on that day, the engineer recorded:

'With reference to GCC2010 Clause 9.2.1.3 it is our opinion that the Contractor has consistently failed to implement the works in accordance with the programme, and as such is neglecting to carry out his obligations under the Contract.'

 

[34]       On 31 July 2013 a letter was addressed by the municipality to the contractor, referring inter alia to previous correspondence, but also the above mentioned letter dated 30 July 2013 (wrongly identified for reasons which were explained, as 'Letter dated 23 July 2013 from Sukuma'), recording that the municipality concurred 'with the opinion of Sukuma Consulting Engineers as stated in their correspondence of 8 March 2013 and 23(30) July 2013 that [the contractor had] neglected to carry out [its] obligations in terms of [the] contract'. The letter concludes:

'Therefore, in terms of the provisions of Clause 9.2 of GCC 2010, please be advised that if you are unable to implement measures to remedy the situation, then the uThukela District Municipality will exercise the right to terminate the above-mentioned contract effective from 14 days of the date of this communication.'

 

[35]       The contractor contends that after 31 July 2013 it was locked out of the site by the municipality and engineer, that its offices were locked, it was not allowed to be on site, and its people were not allowed to work on site. It was however accepted by Mr Coshiwe that he had received the letter from the municipality dated 31 July 2013, and that this letter did not request the contractor to leave the site but simply recorded that the municipality concurred with the opinion of the engineer that the contractor had neglected to carry out its obligations in terms of the contract and required remedial measures to be implemented to remedy the situation.

[36]       Progress payment certificate number 6 is dated 15 August 2013. It would suggest that on 15 August 2013 the engineer still viewed the contract as being very much alive. Mr Maher testified that the last site diary entry signed by the contractor's agent and the engineer's representative on site was 21 August 2013 and that there was still work taking place up to that date.

[37]       On 21 August 2013, which is more than 14 days after the demand of 31 July 2013, the municipality addressed a letter to the contractor referring to their letter of 30 July 2013 (it should be the municipality's letter dated 31 July 2013) and other previous correspondence and recorded that:

'The rate of progress and resources on site have not been increased sufficiently since our previous notice to give any indication that the Works will be completed on the due date. At present 58% of the contract period has lapsed whilst the work completed amounts to approximately 8,5%. Despite assurances and attempts to remedy since our first notification on 25 March 2013 the situation has steadily deteriorated.

We regrettably advise that we consider that we have no further option than to terminate your contract, and in terms of GCC2010 Clause 9.2.1.3.7 we order you to vacate the site and hand it over to our representative.'

 

[38]       This letter giving notice of terminating the contract and requiring the contractor to vacate the site erroneously stated that this was pursuant to clause 9.2.1.3.7. It was followed by a letter from the contractor's attorneys dated 17 October 2013 which recorded that they had noted that the municipality had terminated the contractor's contract and directed the contractor vacate the site. It demanded that the municipality 'reinstate our client's rights in terms of the contract issued by your municipality... '

[39]       In subsequent correspondence by the municipality to the contractor's attorneys dated 29 October 2013 the erroneous reference to GCC 2010 clause 9.2.1.3.7 was referred to. The letter states:

'With reference to our letter dated 21 August 2013 addressed to Abajabuli Projects, The

uThukela District Municipality confirms that the reference to GCC 2010 Clause 9.2.1.3.7 was administratively incorrect, and hereby withdraws the letter.'

 

[40]       Consistent with that letter the municipality in a further letter to the contractor on the same date advised that:

'1. We hereby withdraw our letter dated 21 August 2013, owing to an administrative error.

2. We confirm that following our letter dated 30 July the rate of progress and resources on site were not increased sufficiently to give any indication that the work should be completed on the due date, and as at 21 August 58% of the contract period had elapsed whilst the work completed amounted to approximately 8.5%. Despite assurances and attempts to remedy since our first notification on 25 March 2013 the situation steadily deteriorated.

 

We advise therefore that following our notification of 30 July wherein you were afforded 14 days to remedy the situation as per the requirements of GCC 2010 Clause 9.2, your continued failure to carry out obligations in terms of the contract leaves us no further option other than to terminate your contract in terms of GCC 201O Clauses 9.2, sub clauses 9.2.1.3.3 and

9.2.1.3.5. '

 

[41]       Mr Coshiwe conceded that it was the contractor's obligation to provide the programme that says how the work should be carried out, to the engineer. That obligation would also extend to any subsequent adjusted programme, as required by clause 5.6 of the GCC. He also conceded that clause 10 of the GCC contained a procedure for claims and disputes and a procedure allowing the contractor if it feels that something unfair was happening in the contract, to raise a dispute in accordance with that mechanism. This procedure inter-alia requires that the dispute be raised by way of a notice within 28 days of any problem arising. He conceded that no such written notice (written claim) was ever given but sought to place reliance on references to delays that were minuted at site and similar meetings. That is however not the procedure which clause 10 prescribes.

 

[42]       None of the payment certificates was disputed in accordance with the procedures prescribed by GCC.

[43]       There was no evidence that the contractor ever objected to being put on terms.

[44]       The contractor's remedy if it was justifiably behind in the performance of the contract was not to advance possible reasons and excuses for being behind. If the contractor had a legitimate reason for being behind schedule in the programme so that 'the approved programme no longer reflects that actual progress will meet the Due Completion Date', then the obligation was on it to comply with the provisions of clause

5.6.1 of the GCC and to 'deliver to the Engineer an adjusted programme'. The evidence did not disclose that this was ever done.

 

Discussion

[45]       Although the plea referred to the letters of 8 March 2013, alternatively 30 July 2013, as constituting the engineer's certificate, it seems to me that Mr Maher is correct when stating that one should have regard to the letter of 30 July 2013, with the one of 8 March 2013 simply setting the background, in determining the issue whether the procedural requirements of clause 3.1.2 and 9.2.1.3.3 were complied with. This judgment shall likewise proceed on that basis. In passing it should however be stated that Mr Coshiwe contended that he had not received the letter of 8 March 2013 and that he only received the letter dated 25 March 2013. In view of it only having background relevance[3] I do not intend dealing with that denial of receipt in great detail save to state that his denial should, on the probabilities, be rejected. The letter of 8 March 2013 had been emailed to a number of recipients including Mr Coshiwe on 8 March 2013. The email notification featured as a document in the trial bundle. When confronted with the email caption Mr Coshiwe could only muster, 'well I see this, but I did not receive the letter.' In cross examination he conceded that the address to which the covering email had been sent was his and that he would have received it in the form as addressed, that is with the engineer's letter of 8 March 2013 attached. His version then became that he 'did not see this email and ... the attachment of that letter that was sent on to us,' but receipt thereof was no longer denied.

[46]       Mr Masenya contends that the engineer did not consult with the contractor and the municipality as required by clause 3.1.2. The evidence is however replete with references to the engineer consulting with and inviting and entertaining the contentions of both contractor and employer. Material correspondence was copied to the parties, if not addressed directly to them. The uncontested evidence was that the engineer consulted extensively. The extent of the consultations relating to the determination which resulted in the certificate recorded in the letter of 30 July 2013 appears from the contents of that letter. There is furthermore nothing in the GCC to suggest that any consultative process cannot also be followed through discussions at site meetings and the like and that the consultation process is confined to one on one meetings by the engineer with the contractor and municipality, as Mr Masenya contended.

[47]       It might also be difficult for an agreement as contemplated by clause 3.1.2 to result from consultations where the contractor's default consists of the contractor being behind in the performance schedule, as opposed to matters concerning, for example, 'contract interpretation or price determination' referred to in the first part of clause

3.1.2. Assuming however that it is a default which is somehow capable of being the subject of an agreement, then it seems that the contractor's silence and acquiescence in not actively disputing that it was behind, and in not invoking the provisions of clause 10, might have resulted in an implied agreement that it had defaulted in its obligations in terms of the contract. The contractor is either behind having regard to the provisions of the programme, or it is not. Nowhere in the evidence was it contended by Mr Coshiwe that the contractor was not behind. At best he sought to explain why the contractor was behind schedule. This was not an issue for negotiation and agreement. But even if it was, the contractor and the municipality were probably impliedly in agreement, as required by clause 3.1.2 that the contractor was behind schedule and in default of its obligations. Whether there was such an implied agreement was however not pertinently raised in the evidence.

 

[48]       However, even if 'agreement' was not possible or not achieved, then clause 3.1.2 enjoins the engineer, 'failing agreement' to 'act impartially and make a decision in accordance with the contract'. This was what the engineer did in the letter of 30 July 2013 which was emailed to the contractor and received and which was sent to the municipality. The letter recorded that 'it is [the engineer's] opinion that the Contractor has consistently failed to implement the works in accordance with the programme ... ' There is nothing in the evidence to suggest that in reaching that decision the engineer did not act impartially.

[49]       There was a suggestion in respect of the letter of 8 March 2013, which is only of background relevance, that the engineer had not acted impartially because the minute of the second site meeting on 6 March 2013 recorded that '... the Client has instructed the Engineer to put Abajabuli on terms ...'. This, it was argued, suggests that the engineer had acted at the behest of the municipality and not independently in issuing the letter of 8 March 2013. The wording recorded in the minute alone does not however establish that the engineer could and did not thereafter arrive at an impartial decision that the contractor was behind schedule in performance. The mere complaint by the municipality that the contractor was behind schedule and insisting that (even wrongly perhaps instructing) that the contractor be put on terms does not mean that the engineer has not acted impartially in investigating whether the contractor was behind in the programme and should be placed on terms, this particularly where the evidence adduced is consistent only with the notion on the probabilities that the contractor was indeed in default of its obligations also in early March 2013.

[50]       But in any event, the engineer's letter of 30 July 2013 was not preceded by any similar 'instruction'. Indeed the fact that the engineer reached an opinion which is seemingly consistent with the objective facts, at the level of probability point to his decision being rational and impartial. In the letter dated 30 July 2013 by the engineer to the contractor, which the latter conceded it received, the engineer certified that the contractor was in breach of clause 9.2.1.3.

[51]       Mr Masenya next submitted that if the engineer had decided that the contractor was behind in the programme, that he should have advised the contractor separately before later and separately certifying in writing pursuant to clause 9.2.1.3.3, and referring to the clause specifically, that the contractor 'has failed to proceed with the Works in accordance with the approved programme or in the absence of an approved programme, in the Engineer's opinion.' I can find no provision in the GCC, or in law, or with respect in logic, why the engineer cannot convey his decision pursuant to clause 3.1.2 as part of his certification pursuant to clause 9.2.1.3.3. The certification contained in the letter of 30 July 2013 is simply the outward manifestation and expression of the engineer's decision reached pursuant to the provisions of clause 3.1.2. There is no reason why the decision and certification cannot be contained in a single communication.

[52]       In conclusion, the learned trial judge correctly concluded with reference to inter alia Hulett & Sons Ltd v Resident Magistrate, Lower Tugela[4] and Oldfield v The Master[5] that the letter from the engineer dated 30 July 2013 was a certificate as contemplated in clause 9.2.1.3.3. I and communicated the engineer's decision in terms of clause 3.1.2 that the contractor was behind in the performance of the programme. Pursuant thereto, the municipality was entitled to demand that the default be remedied and to terminate the contract if this was not done. The correct procedures according to the terms of the GCC were followed.

[53]       The contractor failed to remedy its default within 14 days as required by the demand dated 1 July 2013 sent to the contractor. It was not disputed that this demand was received. That demand was required in terms of the concluding portion of clause

9.2.1.3 to be a notice 'with specific reference to this Clause' that is the provisions of clause 9.2.1.3 involved. The demand referred to the opinion of the engineers of 8 March 2013 and 23 (it should be 30) July 2013, which referred to clause 9.2.3.1 and both contained the narrative that the default to be remedied comprised 'that the Contractor has consistently failed to implement the Works in accordance with the programme'.

 

[54]       The contractor did not dispute that it did not remedy its default. Instead it suggested that it was unable to remedy its default because it was allegedly locked out of the site by the municipality and/or engineer. That version can safely be dismissed. The evidence of the alleged lock out did not fall within Mr Coshiwe's personal knowledge but was conceded to be from what he had been told by others who were not called as witnesses. Mr Coshiwe conceded that he was not there, that he could not remember the date of the alleged lock out, and that he was entirely dependent on what had been communicated to him by colleagues. At the level of admissibility and reliability, this evidence amounted to inadmissible hearsay evidence, as it was tendered as proof of the contents thereof. Accordingly there is no evidence of any lock out. Mr Maher's denial of any such lock out is to be preferred. Any notion that the contractor had been locked out is in conflict with the contents of progress payment certificate number 6 dated 15 August 2013 which was issued as if the contract was still valid on 15 August 2013 and with the engineer still viewing the contract as being very much alive on that day. Mr Maher testified that the last site diary entry signed by the contractor's agent and the engineer's representative on site was 21 August 2013 and that there was still work taking place up to that date. Mr Coshiwe was unable to dispute that evidence as he was simply not present on the site, but in Johannesburg.

 

The suggestion that there was a lock out which prevented the contractor from remedying its default was rightly rejected.

[55]       When the default was not remedied, the municipality became entitled in terms of clause 9.2.1.3 to 'terminate the Contract and order the Contractor to vacate the Site and hand it over to the Employer'. The GCC did not prescribe any specific requirements for the termination of the contract, such as a reference to the particular sub-clause involved. The election to cancel, consistent with the principles of the common law, simply had to be communicated to the contractor.

[56]       The municipality cancelled the contract in its letter of 21 August 2013. That letter was received by the contractor as it gave rise to the letter from the contractor's attorney dated 17 October 2013. The letter referred to the wrong clause in the GCC, whether as a result of a typographical error or otherwise. This letter giving notice of terminating the contract and requiring the contractor to vacate the site erroneously stated that this was pursuant to clause 9.2.1.3.7. That provision could not conceivably in the light of the preceding correspondence have applied.

[57]       As indicate above, the cancellation notice was not required to refer to the specific clause to achieve a valid cancellation. All that was required was that the municipality's election to cancel the agreement had to be communicated to and have reached the contractor, which it did. But the contractor could in any event have been left in no doubt as to the basis on which the contract was cancelled. The narrative of the cancellation notice of 21 August recorded that:

'The rate of progress and resources on site have not been increased sufficiently since our previous notice to give any indication that the Works will be completed on due date. At present 58% of the contract period has lapsed whilst the work completed amounts to approximately 8,5%. Despite assurances and attempts to remedy since out first notification on 25 March 2013 the situation has steadily deteriorated.'

This narrative is in direct conflict with the contents of clause 9.2.1.3.7 erroneously referred to in the cancellation notice. The objective legal fact is that the municipality had become entitled to cancel the contract and that it cancelled the agreement.

[58]       When it was brought to the attention of the municipality thereafter that it had referred to the wrong clause in the cancellation notice, this was corrected by withdrawing that letter and immediately replacing it with another letter on the same day, 29 October 2013, referring to the correct clause. I do not believe that a replacement notice was strictly necessary. The fact that the first notice was cancelled and immediately substituted with another did not affect the municipality's accrued right to cancel the contract, and the validity of the actual act of cancellation.

 

The conclusion of the court a quo

[59]       I am not persuaded that it has been shown that the learned trial judge was incorrect in concluding as part of her determination that the termination of the contract was procedurally correct, particularly insofar as clause 3.1.2 was concerned. As the issue separated for determination appears to have been confined to the latter, the terms of her order are with respect too wide and need to be modified. This appeal was however pursued by the contractor on the basis that the termination was procedurally incorrect. The contractor has failed in that argument. Accordingly, the appeal must fail

with costs.

 

Costs

[60]       As regards costs, the municipality was substantially successful and there is no reason why the costs of the appeal should not follow the result thereof.

 

Order

[61]       The following order is granted:

1         Paragraph (a) of the order of the court a quo is amended to read as follows: '(a) It is declared that the termination by the defendant of the service agreement between it and the plaintiff was procedurally in accordance with the terms of clauses 3.1.2 and 9.2.1.3.3 of the General Conditions of Contract for Construction Works (2010) published by the South African Institute of Civil Engineering. '

2         The appeal is otherwise dismissed with costs.

 

 

 

KOEN J

 

 

APPEARANCES

APPELLANT'S COUNSEL:               MR K.P. MASENYA

INSTRUCTED BY:                             MASENYA ATTORNEYS

C/OVIV GREEN ATTORNEYS

Tel: 033 342 2766

 

RESPONDENT'S COUNSEL:         MR G GODDARD SC

INSTRUCTED BY:                          SHEPSTONE AND WYLIE

                                                          Ref V. Nkosi/thuk3974.3

                                                          Tel: 031 5757000

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