Delays in completing construction projects: Passenger Rail Agency of South Africa v Sbahle Fire Services CC (230/2019) [2020] ZASCA

This analysis discusses the Supreme Court of Appeal (SCA) judgment in the matter of Passenger Rail Agency of South Africa v Sbahle Fire Services CC (230/2019) [2020] ZASCA delivered in August 2020. The judgment relates to delays in completing construction projects. It also reflects on the role that arbitration could have played in speedily resolving this dispute.

Background

In 2008 the Passenger Rail Agency of South Africa (PRASA) commenced with the building of the Mabopane Bridge Redevelopment Project.

The requisite procurement processes were followed, and on 18 December 2008 PRASA’s Northern Gauteng Regional Tender Procurement Committee appointed Sbahle Fire Services CC (Sbahle) as fire and safety consultant for the project.

Letters of appointment containing terms and conditions of the contract were sent to Sbahle, in terms of which the total fee of the project in respect of the fire consultancy fee was fixed at R796 185 excluding Value Added Tax (VAT), whilst the cost for the safety consultancy was 5% of the value of the project cost, which was estimated at R134 million excluding VAT.

Both of these contracts expressly provided that should the estimated project value decrease, the respective specified tariffs of the project costs should be applied to the final value. However, should the estimated project value increase, the services will be free until the completion of the project on 31 May 2010.

As at 4 April 2011, PRASA had paid Sbahle a sum of R690 001 in respect of fire consultancy services. In respect of safety consultancy, PRASA had paid the sum of R4 664 854 to Sbahle on the same date. The balance owed to Sbahle in respect of safety consultancy and fire consultancy services was R1 232 607 and R106 184 respectively.

However, PRASA and Sbahle differ in the interpretation of the contracts. Regarding the safety consultancy services, the former contends that the total fee for the services rendered until the completion of the project, regardless of the time period, was fixed at 5% of the total cost of the project. Accordingly, PRASA contended that it had paid in full the total amount of fees due and payable to Sbahle, keeping in mind that the project had not been completed. PRASA’s contention was that any further extension of time with a view to complete the project did not bring about the change of contract price as indicated in respect of both the fire consultancy and the safety consultancy. PRASA wished that the Gauteng Division of the High Court Pretoria (the High Court”) should resolve this contention before the merits of the issue were dealt with.

The clause in question reads as follows:

‘The client shall pay to the Consultant full remuneration for the performance by the Consultant of the services in accordance with this agreement. The fee shall be deemed to be inclusive payment for the services and for all disbursement costs, expenses, overheads or profits of every kind incurred or to be earned by the Consultant in connection therewith. If the Consultant is required by the Client to provide material additional services by reason of any alterations, project extension or modifications to the project as required by the Client, then the Client shall pay to the Consultant additional amount in respect of the fee, commensurate with the additional services performed by the Consultant. However, should the extent of extra work or alterations that the same shall have been necessitated in whole or in part, by any negligent act, omission or default on the part of the Consultant, the Client will not pay to the Consultant additional amount in respect to the fee.’
 
The above clause should be read with the letter sent to Sbahle dated 18 December 2008, which provided that the client (PRASA), would not entertain any extra fees claim unless it introduces a substantial or material change to the scope of the project. The letter further indicated that the fee shall be paid in accordance with the agreed fee as per “Annexure A”. Finally, the letter indicated that should any ambiguity arise between the letter in question and any other previous correspondence, the letter shall take precedence.

The pleadings

At all material times Sbahle was represented by Mr Khuzwayo, and PRASA by Intersite Property Management Services.

In claim 1 Sbahle averred that in December 2008 it entered into an agreement with PRASA in terms of which the former was appointed as the fire consultant in respect of the project.

Claim 2 was based on the second agreement in terms of which Sbahle was appointed as safety consultant.

Up to 31 May 2010 Sbahle was entitled to a fee of R5 897 462 excluding VAT. The additional terms were that fees would be deemed to be inclusive payment for services and for all disbursements, costs, expenses, overheads or profits of every kind incurred or to be earned by Sbahle in connection therewith. The agreement, most importantly, provided that if Sbahle were required by PRASA to provide material additional services by reason of any alterations, project extension or modifications to the project as required by PRASA, the latter would pay an additional amount to Sbahle in respect of the fees, commensurate with the additional services performed.

However, should the extent of the extra work or alterations be as a result of default by Sbahle, PRASA would not be liable to the former for any such additional expenses.

It is averred that up to 31 May 2010, Sbahle was entitled to a total contract amount of R5 897 462 excluding VAT, over a period of 17 months payable in monthly tranches of R395 476 inclusive of VAT.

Sbahle’s contention was that PRASA breached the terms of the agreement by neglecting and/ or failing to pay it for services rendered for the period June 2010 to May 2012. Sbahle had issued invoices for this period, but as at May 2012 the total amount of R9 095 968 was outstanding and remained due and payable.
PRASA, in its amended plea, admitted that the project had not been completed, but it denied that Sbahle was still rendering services to it. PRASA pleaded that it did not, at any stage, request nor require Sbahle to provide any additional services or material by reason of any alteration, project extension or any modifications thereof.

It was specifically denied by PRASA that Sbahle was rendering the same services as it had rendered before 31 May 2010. PRASA pleaded that Sbahle was entitled to and did render the same services after 31 May 2010 in accordance with the extended period up to
28 February 2012.

According to the plea, the parties retained contractual prices which remained the same after the extended period. Pleading to the claim in reconvention, Sbahle stated that the payment was made in respect of the work done and services duly rendered by it to PRASA at the latter’s instance and request. In effect, Sbahle pleaded that there was a legal obligation on PRASA to effect the payment and it was not made ‘in bona fide but mistaken belief’.

Evidence

The only evidence was oral evidence tendered by Mr Khuzwayo on behalf of Sbahle. He testified that Sbahle renders services of safety and specifications and assists clients in sales and services of portable fire protection designs and design layouts in fire protections. He further testified that Sbahle had to ensure that the main contractor adhered to the health and safety standards for the project. He stated that the project was scheduled to start in January 2009 to be completed on 31 May 2010. However, the project could not begin as scheduled because the community raised certain issues, and the owner of the land that was going to be affected did not want the bridge on his land. The latter reason necessitated architectural changes because stalls that were meant to be on the Mabopane side had to be moved.

PRASA, according to Mr Khuzwayo, wanted a derailment wall to be built, additional stalls and the need for PRASA’s offices to be built underneath the bridge. These developments were never catered for in the initial project. Explaining how the failure to complete the project as previously agreed impacted Sbahle, Mr Khuzwayo stated that Sbahle’s work was to assist the main contractor regarding health and safety aspects of the project. Therefore Sbahle had to be available to oversee the main contractor whenever the latter was on site.

High Court analysis

The High Court found that Sbahle rendered the same services as it had done up to and including 31 May 2010 and up to at least 28 February 2012. It found that the further services were an extension of services contracted for and Sbahle was integrally involved with the project.

Regarding the amount claimed by PRASA in the claim in reconvention, the High Court found that PRASA made payment to Sbahle pursuant to the latter’s invoice for the said amount in respect of fire consultancy services. The high court found in Mr Khuzwayo’s favour.

Supreme Court of Appeal judgment

The SCA had to ascertain whether PRASA had breached the contract (and was consequently liable for the amount claimed by Sbahle), with respect to the safety consultancy services.

Sbahle contended that it was entitled to payment in respect of the additional months as it continued to render the same services to PRASA for those additional months. Sbahle based its claim on the provision in the contract which stated that If PRASA required Sbahle to provide additional material services PRASA would be liable to pay additional amounts proportionate to the additional services performed.

PRASA stated that additional material services were neither required, nor were they rendered contrary to what was borne out by the pleadings and Mr Khuzwayo’s oral evidence. The extension of time was granted merely to enable Sbahle and the main contractor to finish the work for which they had already been paid in full.

The SCA highlighted two points around which this dispute was to be resolved. First, it held that the interpretation of the contract in issue was the responsibility of the court, and not that of the witness who testified in favour of Sbahle. Secondly, the SCA stated that there was no basis to make any adverse findings against PRASA simply because the latter did not call a witness to testify. This was because the content of the contracts were common cause to all the parties.

Sbahle only pleaded that it rendered the same services as it did up to the contractual completion date. However, in order to establish a breach of contract, Sbahle had to establish and plead that it was required to perform additional material services by PRASA, the nature and scope of the said services, that it performed the said additional services, and that the amount claimed was commensurate with the additional material services performed.

The evidence by Mr Khuzwayo only related to the changes by other parties to the project (as discussed above). He did not indicate what “additional material services” Sbahle performed. He further failed to produce original designs and designs illustrating the changes made by Sbahle, which would have enabled all parties to assess the nature and scope of the changes Sbahle had to make. The appeal was granted for these reasons.

Discussion

Adjudication is a form of dispute resolution typically used in the construction industry, and this dispute could have benefited from arbitration. This is so because delays in the construction industry do not necessarily result in “additional material work”.

Although finality is a core element of arbitration, the Arbitration Act 42 of 1965 (the Act) contains various grounds for remittal and for setting aside an arbitral award.

Section 32 of the Act provides that parties may, within six weeks of the publication of the award, remit the matter in question to the Arbitration Tribunal for reconsideration. It further provides that the court may, on good cause shown, remit any matter that was referred to arbitration, back to the Arbitration Tribunal for reconsideration and for the making of a further award – or any other purpose that a court may award.

Section 33 of the Act provides for the setting aside of an award where there has been misconduct on the part of the arbitrator in relation to their duties as arbitrator, the arbitrator has committed gross irregularity in the conduct of the arbitration proceedings or exceeded their powers, or the arbitration award has been obtained improperly. If the award is set aside the dispute shall, at the request of either party, be submitted to a new tribunal constituted in the manner directed by the court.

Although the scope of intervention with arbitral awards by the courts is rather limited, arbitration upholds party autonomy. Moreover, arbitration offers the benefit of speedily resolving the issues in question. The SCA stated that Sbahle could well have a competent claim; however, the claim could not be founded on a breach of contract. It is time-consuming and financially costly for a litigant to approach the SCA only to learn that he failed to make necessary pleadings to sustain his cause.

The outbreak of the Covid-19 pandemic continues to necessitate closure of various industries. This is expected to cause delays in many public infrastructure development projects. In order to avoid further delays, parties are advised to revisit their contracts to reassess the viability of their preferred dispute resolution mechanisms, keeping in mind the evolving needs of the business.

This analysis is intended for information purposes only and is a brief exposition of the abovementioned legal position. Mention is not necessarily made of all the finer nuances as set out above. This analysis should under no circumstances be construed as formal legal advice. Contact VDT Attorneys for assistance in this regard.

www.vdt.co.za info@vdt.co.za 012 – 452 1300

July 27, 2021
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