Primavera Construction SA v Government, North-West Province, and Another

• Jurisdiction: South Africa
• Judge: Friedman JP
• Judgment Date: 19 September 2002
• Citation: 2003 (3) SA 579 (B)
• Docket Number: 777/2000
• Hearing Date: 21 August 2002
• Counsel: M D Kuper SC (with him S Symon) for the plaintiff. D M Fine SC (with him I V Maleka SC and L Nkosi-Thomas) for the defendants.
• Court: Bophuthatswana High Court

Friedman JP:

On 21 August 2002 I dismissed the defendants' special plea of prescription with costs including the costs of two counsel. Reasons have been requested and they follow in this judgment.

Inasmuch as the special plea relates to prescription it would be convenient to tabulate the factual background as follows. B

(1)

On or about 12 March 1984, the plaintiff entered into a written agreement with the then Government of Bophuthatswana, in terms of which the plaintiff as a contractor agreed to construct a stadium in Mmabatho with a seating capacity of 60 000 spectators. C

(2)

The written agreement was made up of a memorandum, a copy of which was annexed to the particulars of claim, and a letter of intent dated 10 February 1984.

(3)

In terms of the said letter of intent, a total agreed price for the turnkey project was specified to be R18 750 000 based on D $15 000 000 (divided by 0,80) subject to the Haylett Escalation Formula with February 1984 as base. It is significant to mention that in the memorandum of agreement clause 25.5, provided that upon the issue of the certificate of completion of the works, the architect would issue a final certificate of the value of the works executed by the plaintiff; as well as para 26, which provided that if any dispute E of difference should arise between the Government of Bophuthatswana or the architect on its behalf, and the plaintiff, either during the progress or after the completion of the works or after the determination of the employment of the plaintiff under the contract, abandonment or breach of the contract as to the construction of the contract, or as to any matter or thing arising thereunder, or as to the F withholding by the architect of any certificate to which the plaintiff may claim to be entitled, then the architect would determine such dispute or difference by written decision given to the plaintiff.

(4)

The first certificate was issued on 9 April 1984, and the final certificate on 8 August 1987. Certificates were issued G between the aforesaid dates and the value of the work as certified was R18 750 000 with variations of R1 225 520, escalation of R1 752 007,71 and interest of R178 537 totalling R21 906 065.

(5)

A certificate of completion was issued by architect Goodovitch in terms of the agreement on 5 December 1985, and the H works were finally completed.

(6)

Payments were made by the Government of Bophuthatswana in Rands, and there is no dispute between the parties that all amounts so certified have been paid, and that the works have been completed. I

(7)

In or about June 1984, a dispute arose between the plaintiff, and the Government of Bophuthatswana as to the contract sum.

(8)

The Government of Bophuthatswana contended that the contract sum was fixed in the amount of R18 750 000 without adjustment based on the exchange rate of dollar/rand. J

Friedman JP

(9)

The plaintiff contended that the said sum was expressed to be A R18 750 000 but based on $15 000 000 divided by 0,80 set out in the letter of intent, and consequently the contract sum fell to be adjusted by the dollar/rand exchange rate as it varied from time to time so as to ensure that plaintiff was paid the rand equivalent of $15 000 000 being the true contract sum, upon the completion of the project. B

(10)

The monthly certificates referred to herein were expressed in rands, and paid in that currency, without taking into account the fluctuations in the exchange rate between the rand and US dollar.

(11)

On 17 December 1985 the plaintiff called upon the said Goodovitch in writing in terms of the arbitration agreement, to make a C written determination to resolve the dispute or difference which had arisen between the parties as to the interpretation of the contract sum.

(12)

Goodovitch declined to make a determination of the dispute or difference within 14 days as provided for in the agreement or at all, D and the matter was referred to arbitration and final decision by a certain architect, Louis Karol, being named in the memorandum for such purpose. The said Karol referred the issue to architect S Abramowitch for determination, as he was entitled to do in terms of the agreement.

(13)

The parties placed pleadings before architect Abramowitch in E which they advanced their contentions as to the correct contract sum.

(14)

The relief that was sought in the arbitration by the plaintiff was a written decision declaring that the total agreed contract sum for the work referred to in the memorandum of agreement was R18 750 000 F (based on $15 000 000 divided by 0,80) subject to the Haylett Escalation Formula, with February 1984 as base and therefore required adjustment with the variation of the exchange rate of the US dollar, and the rand, which was also the currency used in Bophuthatswana.

(15)

The written decision sought was a declaration that the agreement between the plaintiff and the Government of G Bophuthatswana falls to be rectified by the rectification of clause 5 of annexure 'A' to the agreement (the letter of intent) and clause 5.1 of the agreement (the memorandum) in a manner set out hereunder.

'The total agreed price for the said turnkey project shall be the rand equivalent of $15 000 000, subject to the Haylett H Escalation Formula, with February 1984 as base.'

(16)

The arbitration proceedings commenced on 25 January 1989 before Mr S Abramowitch.

(17)

Mr Abramowitch referred certain questions of law to the Witwatersrand Local Division for decision and on 27 January 1989, I the Witwatersrand Local Division decided that it did not have jurisdiction to determine the questions of law submitted by Mr Abramowitch and that the then Supreme Court of Bophuthatswana was the Court of jurisdiction.

(18)

On 26 April 1989 Mr Abramowitch withdrew as arbitrator. J

Friedman JP

(19)

On or about 14 December 1990 the plaintiff approached Mr A Karol to appoint Mr W Morey, an architect of the United States of America as arbitrator.

(20)

The arbitration was set down before the said Morey, but the Government of Bophuthatswana launched an application to set aside his appointment, and subsequently his appointment fell away. B

(21)

There was a dispute between the parties as to whether the matter should proceed to arbitration and on 24 June 1993 Hendler J ruled that the parties had intended the question of rectification to be decided by the arbitrator, who had competence to do so.

(22)

After the said judgment a certain Mr Cooke was appointed as C arbitrator.

(23)

The hearing commenced before the said Cooke in September 1994, and the plaintiff requested Mr Cooke to effect substitution of the defendants in the arbitration. He, however, did not do so.

(24)

On or about 26 June 1995 an application was launched by the plaintiff out of this Court under case No M996/95 seeking an order D substituting the first defendant, alternatively the second defendant, alternatively both the first and second defendants for the Government of Bophuthatswana in the arbitration proceedings. The application was opposed but was settled on the terms set out in annexure 'J' to the particulars or claim and made an order of Court. E

(25)

Annexure 'J' is an important document in these proceedings and therefore it is quoted in full:

The parties having reached agreement the following order is granted by consent: F

1.

The respondents, being the Government of the North West Province, herein represented by the MEC for Finance of the North West Province and the National Government of the Republic of South Africa, herein represented by the Minister of Public Works, the Minister of State Expenditure and the Minister of Finance, agree to be substituted as the first and second defendants respectively, for G the Government or the Republic of Bophuthatswana in the arbitration proceedings before the third respondent (the arbitrator).

2.

The first and second respondents agree that they will be jointly and severally liable in respect of any decision of the third respondent or of any arbitrator who acts in his stead, the one H paying the other to be absolved.

3.

Any order of the third respondent or any arbitrator who acts in his stead in the arbitration proceedings shall be deemed to operate in the same manner as if it were an order of court.

4.

The costs of this application be reserved for determination at a I later date and should the parties agree, these costs will be dealt with as part of the arbitration proceedings. In this regard, this agreement does not signify any acknowledgment of liability by the respondents and the respondents reserve their right to submit answering affidavits should this be necessary. J

Friedman JP

5.

The parties agree that this agreement be made an order of Court. A

(26)

Annexure J was signed at Mmabatho on 22 November 1995 and was made an order of this Court.

(27)

Evidence was placed before the said Mr Cooke in May 1996 for approximately three weeks; thereafter the arbitration was postponed to B September 1996 for argument. During the said argument, the defendants applied to Mr Cooke for a reference to the Court as to a further determination of legal issues. Mr Cooke refused the application.

(28)

The arbitration award was delivered by Mr Cooke on 15 December 1997. In his award the learned arbitrator stated, inter alia: C

'No specific amount of money was claimed by the claimant and the award sought from him was a declaratory order in respect of the contract sum.'

He also determined, inter alia, that the agreement was to be rectified because: D

'The common continuing intention of the parties was that the contract was a linked rand contract and the rand would fluctuate...