Construction Law – Liability of Agent to Compensate Contractor for its loss in terms of the JBCC Principal Building Agreement

In the matter of Hyde Construction CC v Blue Cloud Investments 40 (Pty) Ltd 2011 JDR 0954 (WCC) the Court had to decide whether a contractor can succeed with a delictual claim against an agent to compensate the contractor for its loss.

The main dispute arose between the contractor and the first defendant, the employer, who concluded a written JBCC Principal Building Agreement (“the Agreement”) on 25 July 2005.  In terms of the Agreement, the contractor would undertake certain building work at the employer’s premises, including alterations and additions to an existing shopping centre.  The principal agent was a registered architect and was appointed in the capacity of a principal agent of the Agreement.

The contractor alleged that it duly performed its obligations under the Agreement and that the employer was indebted to it for an amount that exceeds R7 million.  The amount is comprised of R4.4 million allegedly due to the contractor together with various interest components calculated under the Agreement.

The contractor’s claim against the principal agent was brought in the alternative, in that, if the Court found that the employer was not liable to the contractor for the compensatory and/or default interest, then the principal agent would be liable to it.

The contractor alleged in its particulars of claim that, in terms of Clause 34.5 and/or Clause 38.5.7 of the Agreement, there was a legal duty owed by the principal agent to the contractor.  According to the contractor the principal agent breached such legal duty by negligently failing to comply with its alleged contractual obligations and the contractor subsequently suffered damages as a result of the alleged loss of the compensatory interest and the default interest.

EXCEPTION FILED BY THE PRINCIPAL AGENT:

The principal agent filed an exception to the contractor’s particulars of claim, objecting on the following grounds:

1. The principal agent, in its capacity as principal agent of the employer, did not have locus standi in judicio to be sued in his own name;

2. The “legal duty” alleged by the contractor was not competent in law; and

3. The contractor’s particulars of claim lacked averments necessary to sustain a cause of action against the principal agent.

LOCUS STANDI OF THE PRINCIPAL AGENT:

 Locus standi in judicio is the capacity or ability of a party to participate in litigation proceedings.

The objection of the principal agent is based on the fact that, in terms of the Agreement, he was at all material times acting as agent for the employer.  Therefore the suit should more properly be brought against his principal, the employer.

The Court did not agree with the aforesaid and decided that this first basis for exception must fail.

LIABILITY FOR PURE ECONOMIC LOSS:

Fundamental to a delictual claim for pure economic loss is the necessity to plead and prove wrongfulness.  The court had to consider whether the contractor made out a case for the extension of delictual liability.  To do so, it was necessary for the court to consider the Agreement.

CONSIDERATION OF THE AGREEMENT BY THE COURT:

Clause 5 of the Agreement determined that the principal agent would be the only person with the authority to bind the employer.  As such, he was liable to the employer for any negligence on his part which may cause financial loss to the employer.

In terms of Clause 34.1, one of the principal agent’s duties was to prepare the final account for submission to the contractor within 90 days of practical completion of the works.  Clause 34.5 determines that in the event that there is no objection from the contractor to the final account, the principal agent was required to issue a final payment certificate within seven days.

Clause 34.11 states that the employer was obliged to pay the contractor so called “compensatory interest” on the net amount certified by the principal agent in the final payment certificate.  Clause 34.12 determined that in the event that the contractor did not receive timeous payment of the amount due in the final payment certificate, the employer would be liable for so-called “default interest”.  This amount would be recoverable by the contractor from the employer’s payment guarantee which the contractor was entitled to request in terms of Clause 15.4.2 of the Agreement.

According to the contractor the principal agent did not comply with its obligations under the Agreement by negligently failing to issue further interim payment certificates and failed to issue the final account and/or the final payment certificate.  The contractor was of the view that the aforementioned omissions resulted in it suffering damages in the form of loss of interest. 

DOES THE PRINCIPAL AGENT HAVE A LEGAL DUTY TO AWARD THE CONTRACTOR?

There was no contract concluded between the principal agent and the contractor.  Accordingly, in formulating a delictual claim against the principal agent, the contactor sought to rely on a legal duty purportedly owed to it by the principal agent.

The contractor’s view that the failure by the principal agent to certify in terms of Clause 38 of the Agreement, constituted a breach of a legal duty owed to it, was assessed by the Court.  The claim against the principal agent is brought in the alternative.  The Court found that the contractor had a contractual claim against the employer under the Agreement to recover the lost interest and emphasised that the principal agent was appointed in terms of an agreement with the employer.  The Court also remarked that, when the contractor elected to contract with the employer on the basis of the JBCC Agreement, 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 Agreement and had it wished to protect itself against the principal agent’s potential negligence, it was free to contract on that basis.

CONCLUSION:

The Court found that the contractor has advanced no cogent grounds for the extension of delictual liability to the principal agent in the circumstances.  The Court also found that the claim against the principal agent is bad in law to the extent that it is alleged that the principal agent bore a legal duty towards the contractor.

The architect’s exception to the contractor’s particulars of claim was upheld with costs.