On the question of whether a Contractor can claim interest on retention monies, the answer is no, the CIDB contracts (JBCC, GCC, NEC & FIDIC) do not expressly address interest on retention and unless specifically agreed to will not find application. In addition, following the Thomas Construction (Pty) Ltd (in liquidation) v Grafton Furniture Manufacturers (Pty) Ltd case, retention monies belongs to the Employer until certified for payment to the Contractor, hence another reason why interest cannot be claimed.

On the question of whether an appointed quantity surveyor can be held liable for erroneous valuations of variations and/or interim payment certificates. The answer is YES. If the principal agent relied on the erroneous valuations of the quantity surveyor and the employer suffered financial loss due to such erroneous valuations, the employer could recover damages from the principal agent, who might be able to recover damages from the quantity surveyor. (Finsen’s 3rd Edition)

The importance of valid arbitration agreements

It is common practice in many construction and engineering contracts to include an arbitration clause in the main contract. A party wishing to refer a dispute to arbitration must be able to demonstrate firstly, that the arbitration agreement was validly concluded and secondly, that the dispute is one which falls within the ambit of the agreement.

Thus, the parties should ensure that the arbitration clause is drafted as widely as possible to allow its existence to be independent and separable from that of the main contract. In the event that the validity of the main agreement is brought into question, a contractual dispute would still be capable of being referred to arbitration, if the arbitration clause was drafted appropriately. A failure to do so might result in the Courts being a prospective claimant’s only recourse in settling a dispute in this regard. (Buttler & Finsen, Arbitration in South Africa: Law and Practice p. 57)

Which parties involved with the construction of a residential dwelling are obliged to register as a “home builder” with the NHBRC in South Africa?

Section 10(1) of the Housing Consumer Protection Act 95 of 1998 states that, “no person shall carry on the business of a home builder; or receive any consideration in terms of an agreement with a housing consumer in respect of the sale or construction of a home unless that person is a registered home builder”. This prompts one to ask what the “business of a home builder” would entail? The Act defines it as the following in section 1(i):

· To construct or undertake to construct a home;

· To cause a home to be constructed for any person;

· To sell or otherwise dispose of a home mentioned above;

· Any other activity as prescribed the Minister for this definition.

Furthermore, the Act distinguishes in section 10(6), between home builders who have the physical capability to do construct homes on their own and those who do not. Home builders who cannot build a home by themselves are obliged to appoint a home builder who can. A practical example would be a property developer appointing a contractor to do the construction work. In the aforementioned example, both the contractor and property developer would be obliged to register as home builders, as confirmed in the Constitutional Court Case of Cool Ideas 1186 CC v Hubbard and Another. An enquiry made by our offices to the NHBRC also confirmed the aforementioned. The consequences of failure to register as a home builder and advantages of registering will be explored in subsequent advice notes.

Liquidated Damages vs Actual Damages

Various situations may lead to damages claims in construction projects – unplanned delays being one of the most notorious offences. The party affected negatively by the delay would naturally want to be compensated for the inconvenience and associated monetary losses.

Liquidated Damages are provided for in contract expressly between the parties and the parameters thereof are clearly established (e.g., the Contractor shall be liable for R12 000.00 in penalties for every day after Practical Completion wherein the necessary goals have not been reached).

Actual Damages are not necessarily provided for expressly in contract. This has the effect that these damages may be uncapped, at least insofar you can prove the onerous legal requirements, due to the fact that no specific contractual provision prescribes its scope.

A party to a contract, attempting to argue that performance of their obligations was prevented by the counterparty, must be able to prove it on a balance of probabilities. Self-created impossibilities will not release the aggrieved party from their contractual duties (Benjamin v Myers 1946 CPD 655).

When claiming damages for breach of contract, the innocent party is entitled to claim an amount that would place them in the same position if the contract had been fulfilled without issue. Often in construction projects, this amounts to the agreed upon contract sum, plus the reasonable cost of extra labour and materials as necessary.

In quantifying the correct amount for a breach of contract damages claim – there must be a causal link between the loss suffered and the breach of contract. For any given claim, the damages must have been foreseeable at the conclusion of contract and agreed upon by the parties in the occurrence of such event.

Concerning the material breach of contract, an innocent party normally has the choice of insisting upon specific performance in terms of the contract or claiming damages in the alternative (Cohen v Shires, Mchattie and King 1882 Kotze’s Reports 41).

A party who commits a material breach of contract, may not elect to pay damages instead of delivering specific performance in terms of the contract, such discretion is normally reserved for presiding officers in legal forums.

Relevant considerations in South African Law for determining whether an award for damages would be appropriate instead of an order for specific performance, in cases of material contract breach:

Damages would serve as adequate compensation; enforcement of specific performance will be difficult; the thing claimed is easily obtainable elsewhere; specific performance entails a service of a personal nature; an order of specific performance would be unreasonable, inequitable, unjust, or bring about unnecessary hardship upon the offending party.