IN THE HIGH COURT OF SOUTH AFRICA 
WESTERN CAPE HIGH COURT, CAPETOWN

CASE NO:    8293/10

In the matter between:
HYDE CONSTRUCTION CC 					Plaintiff

and

BLUE CLOUD INVESTMENTS 40 (PTY) LTD 			First Defendant
BARRY ST LEGER-DENNY					          Second Defendant

JUDGE:				P.A.L. GAMBLE

FOR PLAINTIFF:			Adv. E.C.D. Bruwer 

INSTRUCTED BY:			Mosdell Pama Cox Attorneys	

FOR FIRST DEFENDANT:		Adv. Dawid Welgemoed		

INSTRUCTED BY:			Shepstone and Wylie			

FOR SECOND DEFENDANT:	

INSTRUCTED BY:			Andrew Miller and Associates

DATES OF HEARINGS :		10 February 2010 

DATE OFJUDGMENT:		1 August 2011

IN THE HIGH COURT OF SOUTH AFRICA 
WESTERN CAPE HIGH COURT, CAPE TOWN

CASE NO: 8293/10
In the matter between:

and

JUDGMENT : 1 AUGUST 2011

GAMBLE, J:

INTRODUCTION
[1] This exception is concerned with the potential delictual liability of a person appointed as an agent under a building contract for damages to one of the parties to that contract.

[3] The building contract concluded between the contractor and the employer is contained in a recognised standard form agreement prepared by the Joint Building Contracts Committee Incorporated and is more commonly known as the "JBCC Series 2000. Third Edition Code 2101" ("The JBCC 2000").

[5] The contractor alleges in its particulars of claim that it has duly performed its obligations under the JBCC 2000 and that the owner is indebted to it in various amounts, the total whereof exceeds R7m That sum comprises capital allegedly due to it of some R4,4m together with various interest components calculated under the JBCC 2000. For present purposes it will suffice to refer in this regard to so-called "compensatory interest" and "default interest" as defined in the JBCC 2000 and which the contractor alleges is due to it.

[6] The contractor's claim against the Second Defendant is brought in the alternative: it is alleged that in the event that the Court finds that the owner is not liable to the contractor for the compensatory and/or default interest, then (and only then) the Second Defendant is liable to it in these amounts.
[7] After the contractors application for summary judgment against the owner was withdrawn pursuant to the filing of an opposing affidavit, the owner filed its plea and claim in reconvention

THE EXCEPTION

[10] In the notice of exception the Second Defendant's objection to the claim brought against him is set out as follows:

5.1. 'In terms of clause 38.5.7 and/or 38.5.4 and/or clause 34.5 of the principal building agreement there was a legal duty incumbent upon the Second Defendant...';
5.2. The Second Defendant breached such legal duty by negligently failing to comply with its (sic) alleged contractual obligations;
5.3. As a result of such negligent omission the Plaintiff has suffered damages as a result of the alleged loss of the compensatory interest and the default interest.
6. The Second Defendant in the capacity as the First Defendant's principal agent, does not have locus standi in judicio to be sued in his own name.
7. The legal duty" alleged by the Plaintiff is not competent in law.

8. In the premises the Plaintiffs particulars of claim lack averments necessary to sustain a cause of action against the Second Defendant."

[11]   It will be observed that therefore that the exception raises two points of law:

11.2. Secondly, it is contended that the alleged legal duty owed to the Plaintiff by the Second Defendant is bad in law.

It will further be noted that the Second Defendant does not complain that the factual allegations in the particulars of claim are insufficient to sustain the cause of action.

"LOCUS STANDI" OF SECOND DEFENDANT?

[13] However, the objection of the Second Defendant to the suit brought against him appears to be based on the fact that, in terms of the JBCC 2000, he was at all material times acting as agent for the owner. Hence, the argument goes, the suit should more properly be brought against his principal, the owner.

[15]   Accordingly the first leg of the exception must fail.

LIABILITY FOR PURE ECONOMIC LOSS

[18]   The learned judge proceeded  to tackle the nub of the problem:

“

'[21]   When detennining whether the law should recognise the existence of a legal duty in any particular circumstances what is called for is not an intuitive reaction to a collection of arbitrary factors but rather a balancing against one another of identifiable norms."

[22]   Brand JA continues: -

'[22]....In a case like the present where the claim for pure economic loss falls outside the ambit of any recognised category of liability, the first step is therefore to identify the considerations of policy that are of relevance As part of the identification process assistance can of course be gained from previous decisions, both at home and abroad, as well as from the helpful analysis by academic authors...

"[7] Various epithets have been used to express the nature of the enquiry to be made when the law is sought to be developed in that way - whether the legal convictions of the community' call for the recognition of liability, whether the plaintiffs' interest falls within 'the range of interests that the law sees fit to protect against negligence', the 'boni mores' of society, the general criterion of reasonableness - but in each case the expression is so wide as not to be a true test at all. They nonetheless help to direct attention to the nature of the enquiry.

[8] Cases that have been decided in this Court for thirty years and more make it clear that the enquiry is whether contemporary social and legal policy calls for the law to be extended to the exigencies of the particular case.
[9] For in each such case a court is being asked to extend the common taw, and all of the common law, from its beginnings, is the product of contemporaneous social and legal policy...

[10] Thus by the very nature of the enquiry it will not be helpful in a particular case to look at what has been decided in other cases of an altogether different kind. Where the case is not one that fits within the social and legal policy that has led to liability being recognised in other cases, then what is called for instead is reflection upon what considerations there might be that necessitate the law also being advanced to meet the new case That calls not for a mere intuitive reaction to the facts of the particular case but for the balancing of identifiable norms "

[25] Siemens having delivered and installed the units on site, they thereafter malfunctioned causing the completion of the project to be delayed As a consequence of that delay AB became liable to the owner of the mine for penalties and additional expenses under the construction contract with the owner AB alleged that the malfunction of the units and the resultant loss was attributable to negligence on the part of Siemens and it sued for damages.

[27] In analysing AB's case on appeal, Nugent JA noted that AB had relied heavily on the so-called "product liability cases" - that Siemens, as a company claiming to have special skill and knowledge relating to the design and manufacture of such units was liable for loss caused to the user by a defect in the product.

[28] After discussing various authorities on the question of product liability. Nugent JA commented as follows on the applicability of that area of the law to the facts before the Court:

"[15] The considerations of policy that underlie cases of products liability have no bearing upon a case of present kind. We are not concerned in this case with anonymous consumers of mass produced goods. We are concerned with a major construction project involving a multiplicity of contractors and sub-contractors whose co-operation was defined through a web of inter-related contractual rights and obligations. That bears no resemblance to the distant and impersonal relationship that characterises the distribution of bottles of ginger beer  and motor vehicles '"

"[20] Counsel for AB Ventures pointed out, correctly, that in that case a contractual nexus existed between the plaintiff and the defendant, but that in this case AB Ventures and Siemens are not in contractual privity. He submitted that in those circumstances AB Ventures was not capable of protecting itself against the negligence of Siemens in the same way.

[22] If AB Ventures indeed sustained loss then the reason that it did so was because it attracted the loss to itself in its contract with Lumwana {the mine owner]. By its own contractual act it took upon itself the risk of liability arising from delay and expenses that might be caused by the default of other contractors. The act of Siemens in causing delay and expenses was no more than the trigger for that liability to arise Had AB Ventures not contracted to accept that risk in the first place then it would not have suffered the loss at all. That it had no contractual nexus with Siemens means only that it was not capable of shifting the loss that it had brought upon itself to Siemens contractually but that is beside the point We are concerned with whether it was capable of avoiding loss, and not whether it was capable of shifting it elsewhere, and clearly it was capable of doing so...

[30] Against that background I turn now to consider whether the contractor has made out a case for the extension of Aquilian liability in this matter. To do so it is necessary to consider the JBCC 2000 in some detail.

[32] In 1984 the Joint Building Contracts Committee (or JBCC as it became known) was established. This body was representative of the various principle players in the construction industry and set about drafting a new agreement acceptable to all of the stakeholders and, most importantly, the State in the form of the Department of Public Works. The first version of the JBCC contract was published in 1991. The second edition eventually evolved (through a number ofrevisions) into the JBCC Series 2000 contract which has the support of the Department of Public Works.

[33]   The current JBCC 2000 is described as follows by Finsen 

"The JBCC Series 2000 is a suite of documents that comprise the Principle Building Agreement and the Minor Works Agreement, which define the legal rights and obligations of the employer and the contractor, the Nominated/Selected Subcontract Agreement, which regulates the relationship between the contractor and a nominated or selected sub-contractor, and a variety of ancillary documents which facilitate the administration of the contract. These included the Preliminaries, the Contract Price Adjustment Provisions, the Construction Guarantee, the Payment Guarantee, the Advance Payment Guarantee, the Payment Certificate, the Completion Certificate, etc

These documents are intended to be used in conjunction with each other. On no account should they be used in conjunction with any of the previous generation of JBCC documents because the various provisions will be mismanaged and ambiguities and con confusion will ensue."

(34] From the aforegoing it is evident that the current JBCC 2000 is a product of many years of industry-wide debate, consideration and ultimately consensus All of the role players in the construction industry know its ambit and terms and it is important that there be consistency in its application
[35] Clause 5.0 of the JBCC 2000 requires the employer to appoint a named person as the principal agent under the contract:

5.1. The employer shall appoint the principal agent as stated in the schedule. The employer warrants that the principal agent has full authority and obligation to act in terms of the agreement, and where appropriate the associated nominated and selected subcontract agreements.
5.2. The employer may appoint agents as stated in the schedule and may appoint further agents with the contractor being notified thereof.
5.3. The principal agent shall be the only person who shall have the authority to bind the employer, except where agents issue contract instructions under delegated authority in terms of 5.3.2. Without detracting from the above, the principal agent shall be the only person empowered to

5.3.1. Issue contract instructions, except as provided in terms of 5.3.2:
5.3.2. Delegate to the other agents authority to issue contract instructions and perform such duties as may be required for specific aspects of the works, provided that the contractor is given notice of such delegation:
5.3.3. Receive notices on behalf of the employer.

5.4. Should the principal agent or any agent be unable to act or cease to be an agent, the employer shall notify the contractor of the new principal agent to be appointed. The employer shall not appoint such principal agent or agent against whom the contractor makes a reasonable objection in writing within five (5) working days of receipt of such notice."
It will be observed, therefore, that the principal agent who fulfils a variety of roles and functions under the JBCC contract, is an agent in every sense of the word that our law understands that relationship. As such he is, of course, liable to the employer for any negligence on his part which may cause financial loss to that party 

[36] The functions and duties of the principal agent are extensive. As Finsen  points out:

.. .(The) principal agent may delegate some of his duties to other agents, and must inform the contractor accordingly. But only the principal agent shall have the power to bind the employer (clause 5 3) or to receive notices on behalf of the employer (clause 5 3.3). or to issue contract instructions, except that he may delegate to another agent the authority to issue contract instructions for specific aspects of the works (clause 5.3.2)...

The principal agent and the other agents have a limited function in the subcontract agreements. The principal agent, or another agent under delegated powers, approves the sub-contract work and values variations and determines the amount to be paid to a sub-contractor under an interim or final payment certificate, and prepares the sub-contract final account."

[37] One of the important functions then of the principal agent is the preparation of the final account for submission to the contractor within ninety days of practical completion of the works (clause 34.1). In the event that there is no objection from the contractor to the final account, the principal agent is required to issue a final payment certificate within seven days (clause 34.5).

[38] In terms of clause 34.11 the employer is obliged to pay the contractor so-called "compensatory interest" on the net amount certified by the principal agent in the final payment certificate. The principal agent is charged with the function of calculating such interest in accordance with an agreed formula.

[39] In the event that the contractor does not receive timeous payment of the amount due in the final payment certificate, the employer is liable for so-called "default interest" which is similarly payable in terms of an agreed formula to be calculated by the principal agent (clause 34.12). This amount is recoverable by the contractor from the employer's payment guarantee which the contractor is entitled to request in terms of clause 15.4.2.

[40] As indicated above, the complaint of the contractor as formulated in the particulars of claim is that the principal agent not only failed to issue further interim payment certificates after 3 May 2007 but also failed to issue the final account and/or the final payment certificate. These negligent omissions, says the Plaintiff, resulted in it suffering damages in the form of lost interest.

[42] This judgment must therefore proceed on the assumption that the Second Defendant did not issue any payment certificates {neither interim nor final) after 3 May 2007 The effect of such failure is that the contractor has not been able to recover from the employer what it alleges is finally due to it under the contract, notwithstanding the fact that the Second Defendant certified practical completion of the works on 19 October 2006. (The latter allegation is made in paragraph 9 of the particulars of claim)

DOES THE SECOND DEFENDANT HAVE A LEGAL DUTY TO AWARD THE PLAINTIFF?

[48] The basis for the claim in that case was argued on exception before a Full Court of this division. In his judgment Ogilvie Thompson J dealt extensively with the liability of an architect (not a principal agent) in relation to the issuing of a final certificate but it must be stressed at the outset that the claim was brought by the employer against the architect who had been appointed by the employer to perform certain professional functions in terms of a building contract which was wholly different in nature to the JBCC 2000. The case is therefore distinguishable on two basis - firstly, the present claim is brought against the architect by the contractor and not the employer, and. secondly, the contractual provisions were materially different.

"The duties of an architect may - depending always upon the wording of the particular contract - embrace both those of agent for the building owner andarbitrator or quasi - arbitrator between the building owner and the
contractor..."

[50]   Then, it is said that-

[51]   But it was stressed that the -

[56] In terms of clause 40 of the JBCC contract, the principal agent may be requested by the contractor to "determine" any dispute between it and the employer or the employer's agent. The principal agent's decision must be given in writing within ten days and is final and binding on the parties unless either party disputes that decision. In such event the dispute is referred to arbitration under clause 40.4.

[57] In my view, the aforementioned provisions of the JBCC contract clearly cloak the principal agent with qt/asZ-arbitral powers in circumstances where he/she is required by the contractor under clause 40.1 to determine the correctness of the final account issued under clause 34.3, or the final payment certificate under clause 34.5. However, where the principal agent acts, for example, under clause 31 the function is similar to that of a "certifier", a role in which he/she draws on professional skill, expertise and/or experience.

[59]   The conclusion to which the learned Judge came in that case was -

[63] In clause 9 of the JBCC contract provision is made for various forms of indemnity. Of particular relevance to the present case is the following:

9.2.1. An act or omission of the employer, the employer's servants or agents and those for whose acts or omissions they are responsible."

[65] Then there is the fact that we are dealing with a contract that has very wide (some may say almost universal) application in the construction industry in our country. When the contractor elected to contract with the employer on the basis of the JBCC 2000 it knew of the merits and demerits inherent in that form of agreement. The contractor was not obliged to contract in terms of the JBCC 2000 and had it wished to protect itself against the principal agent's potential negligence, it was free to contract on that basis.

"...We are concerned with a major construction project involving a multiplicity of contractors and sub-contractors whose co-operation was defined through a web of inter-related contractual rights and obligations."

[67] Furthermore, there is the consideration that by imposing liability on the principal agent vis-a-vis the contracting parties to the JBCC 2000 with whom he has no contractual privacy, such an extension may lead to principal agents either refusing to accept appointments under the JBCC 2000, or to them having to take special professional insurance cover to deal with that eventuality. Such consequences could hamper the efficiency of the implementation of JBCC 2000 contracts and also effects the cost parameters thereof.

CONCLUSION
[69] In the light of the aforegoing I am of the view that the Plaintiff has advanced no cogent grounds for the extension of delictual liability to the Second Defendant in the circumstances under consideration. It follows therefore that the claim against the Second Defendant is bad in law to the extent that it is alleged that Second Defendant bore a legal duty towards the Plaintiff to take the steps set out in paragraph 22.3 of the particulars of claim.

ORDER
[70] The exception to the Plaintiffs particulars of claim as formulated in paragraphs 7 and 8 of the notice of exception dated 8 June 2010 is accordingly upheld with costs.

P.A.L GAMBLE