Liability of principal agents in construction agreements – in particular JBCC agreements

In the matter of Hyde Construction CC v Blue Cloud Investments 40 (Pty) Ltd the court dealt with the potential liability of a person appointed as a principal agent of the owner of a property for damages to a construction industry or environment.

Background
It is alleged by the Contractor that on or about 25th July 2005 a written agreement was concluded between itself and Blue Cloud investments 40 (Pty) Ltd.
This building contract was contained in a standard form agreement prepared by the Joint Building Contracts Committee (JBCC 2000).
The JBCC 2000 makes provision, inter alia, for the appointment by Blue Cloud Investments of a so–called ‘principal agent’. Blue Cloud Investments then appointed a registered professional architect from Durban.
In terms of the contract, the Contractor would undertake certain building work at the Blue Cloud Investment’s premises in Knysna, including alterations and additions to an existing shopping Centre.

The role of the principle agent
In terms of the JBCC 2000 series contract, the principal agent will be the only person who will be have the authority to bind the employer, that is, its principal.
Where more than one agent is employed, the principal agent shall oversee such agents and even delegate some of his or her authority to them.
The principal agent receives notices on behalf of the principal or employer.

Duties of the principal agent
The employer surrenders many of its contractual rights to his principal agent inter alia:

  • the issuing of contractual instructions;
  • delegation of authority to other agents, if any, to issue contractual instructions;
  • approve work and/or order additional work;
  • to determine the nature and extent of the work;
  • to extend the construction period in appropriate circumstances;
  • determine the amounts of payments to be made; and
  • issue interim and final payment certificates.

By virtue of the role the principal agent plays he or she binds the employer or principal and is thus liable to them with regards to any negligence on his part which may result in financial loss.

The dispute
The dispute arose from alleged non–payment of money due to Hyde Construction by Blue Cloud Investments after Hyde Construction has allegedly discharged its obligations under the JBCC contract. Hyde Construction alleged that Blue Cloud Investments is indebted to it in various amounts exceeding R7 million (to be precise the amount comprise of R4,4m together with compensatory and default interest amounting to R2 642 826 in the sum of R7 042 828).
The “compensatory interest” is according to the JBCC contract, an interest that the owner or principal or employer is obliged to pay the Contractor on the netto amount certified by the principal agent in the final payment certificate, calculated according to an agreed formula.

The exception
It was common cause that the Contractor’s claim against the architect was founded on a delict and subsequent damages entailed pure economic loss.
The claim in the alternative by the Hyde Construction alleged that in terms of the contract, Blue Cloud Investments owed a legal duty of fulfillment of contractual obligations to Hyde Construction.
The architect breached such legal duty by negligently failing to comply with its alleged contractual obligations.
As a result of this negligent omission, Hyde Construction suffered damages as a result of the alleged loss of the compensatory interest and default interest.
However, the architect in his capacity as Blue Cloud Investment’s principal agent, does not have locus standi in judicio to be sued in his own name.

Locus standi of the principal agent
The Court described the term “locus standi in judicio” as generally used to refer to the capacity or ability of a party to litigate, and in particular to initiate proceedings. It is not often used in relation to the capacity of a party to be sued.
The Court therefore decided that the challenge on locus standi must accordingly fail.

Liability for pure economic loss
The Court concluded that Hyde Construction’s claim that the architect owed it a legal duty was an attempt by Hyde Construction to extend liability beyond Hyde Construction.
For many years the Aquilian action for damages for pure economic loss has been recognised in our law.
Fundamental to a delictual claim for pure economic loss is the necessity to plea and prove wrongfulness.

Finding
The Court found that the principal agent may be held liable to his employer, Hyde Construction, either in terms of their contractual arrangement embodied in the JBCC 2000 or in delict. It further found that the architect was unnecessary burdened to expose him to potential liability in respect of a further delictual claim by the Contractor as the Contractor had adequate other legal redress.
The claim against the architect was found to be bad in law to the extent that it was alleged that the architect bore a legal duty towards Hyde Construction as prayed in the particulars of claim. The exception to Hyde Construction’s particulars of claim was accordingly upheld with costs.
The potential delictual liability of a person appointed as an agent under a building contract for damages raises a lot of concern regarding our law of contract.

There is a gray area regarding the contractor’s claim against its principal agent in delict and for pure economic loss. In my view, the aforementioned provisions of the JBCC contract clearly cloak the principal agent with quasi-arbitral powers in circumstances where he or 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 or she draws on professional skill, expertise and/or experience.
Clearly the contractor is not without legal recourse to recover the lost interest and has a contractual claim (which it has sought to enforce) against the owner under the JBCC 2000. This factor mitigates against the necessity to impose a general liability on the principal agent vis-a-vis the contractor. There does not appear to be any compelling social need or legal policy consideration which demands the extension of such liability.
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.
The court found that Hyde Construction has advanced no cogent grounds for the extension of delictual liability to the architect in the circumstances under consideration. The principal agent herein was successful in its exception against the contractor’s particulars of claim.
This case failed to certify whether or not principal agents could be liable for the employer, what this case set out is that cogent reasons must exist for the contractor to hold the principal agent liable, the aquilian claim must be drafted properly and the absence thereof will only nullify the contractor’s claim in respect of the principal agent not to the employer. It remain to be seen whether our law will in future determine this conundrum.

By Abi Matjila and John Letsoalo
abious@dyason.co.za  |  johnl@dyason.co.za

Legal advice for visual artists

When embarking on a visual arts career, artists are often so happy just to secure a commission or funding for a project that they immediately agree to anything the commissioner, funder or gallery owner demand and pay little or no attention to the legal aspects or consequences of their commitment.

Without confusing the legal issues in legalese, here follows a few practical tips when confronted with negotiations involving visual art commissions:

  • Always properly consider the terms and conditions of any agreement before rushing into a commission and signing a contract. Contractual agreements are legally binding and hard to change after conclusion, especially if the parties to the agreement no longer seem to get along or disagree on the interpretation of certain clauses. The flip side is that a legally binding contract will only come into effect if there is a true meeting of the minds between the contracting parties, with other words, only when the parties fully agree on each and every term and condition contained in the contract, will the contract come into being;
  • Use so-called best practice guidelines to guide you during your negotiations and execution of your commission.Currently only four countries in the world have formal “Norms and Standards” for good practice in their respective visual arts industries, but fear not, the Visual Arts Network of South Africa (VANSA) has been commissioned to draft “Norms and Standards” for the South African visual arts industry and recently held country wide workshops to collect input from all interested roll players. (We’ll keep you informed of further developments in this regard in this newsletter.)However, it must be emphasised that best practice guidelines is not legally binding and only serves as an ethical and professional guide to aid you during your business endeavours and to clarify the terms and conditions applicable when undertaking a commission. It is advisable to, once such “Norms and Standards” have been drafted for South Africa, to send a copy of it to your commissioner at the earliest opportunity, which may also serve as a written acceptance of the commissioner’s offer after which the parties can attend to the contractual formalities.
  • After concluding an agreement and signing the written commission contract, confirm such agreements in writing and safely keep a copy of the contract to serve as reference for future disputes and documentary proof of the terms and conditions of the agreement between the parties. Similarly, also keep all correspondence and commissioning briefs from your clients for at least a period of 3 years after completion of your briefs or commissions.
  • When reading through the commissioning contract, look out for clauses demanding ownership of your art work and complete assignments of copyrights. You must actively attend to sort out such issues as your failure to respond to these demands, even though you may not be in agreement with it, may be construed as your implied agreement with the terms and conditions of the contract. In practice it often happens than a commission is well under way when the contract in respect thereof surfaces. Make sure that any discrepancies or uneasiness in respect of the contract is immediately sorted out before continuing with your commission, as your failure to do so, and your completion of the commission may be interpreted as your agreement to the clauses as contained in the contract, even if you did not sign it. Best practice will be to finalise the agreement by means of a formal written contract first and only then start with the execution of the commission.
  • When in doubt, obtain legal advice.In terms of section 3(1) of the Copyright Act 98 of 1978 copyright is automatically conferred to an author of an artistic work by this section and does not need any further form of registration. It is sometimes difficult to establish who the author or creator of an artistic work is, unless your work is properly signed or branded and accordingly difficult to identify the person whose consent must be obtained before copying or using the specific work. The Association of Illustrators, situated in the United Kingdom, makes “ownership or copyright” stickers available to their members to attach to their illustrations in an effort to solve the aforementioned. These stickers contains information on the handlers of the artwork, authorship, ownership and importantly, that the wok must be returned to the person indicated on the sticker.Always obtain legal advice on, often long and complex, royalty contracts. Never begin substantive illustration work on a picture book until these contracts have been finalised.
  • Do not copy other images, not even photographs! Section 7 of the Copyright Act 98 of 1978 strictly prohibits the copying or reproduction of a work in any form or manner (subsection (a)), publication of a work, if not yet published (subsection (b)), making of an adaptation of a work (subsection (e)) or any of the aforementioned acts in respect of an adaptation (subsection (f)). Contravening one of these prohibitions will constitute copyright infringement which can be punishable with a fine not exceeding R10 000-00 or imprisonment for a period not exceeding 5 years.An exception to the above is fair use, but this subject falls outside the scope of this article.
  • Always keep to agreed deadlines and never agree to an unreasonable dead line. Badly missed deadlines may result in your liability for damages for example when your illustrations for a children’s book is late and the book hits the market later than anticipated and misses certain income targets. If you foresee a missed deadline, clearly and timeously communicate your difficulties in this regard and re-negotiate a new deadline. After all, life happens when you’re making plans.
  • Never accept a commission behind your agent’s back in an effort to avoid paying the agent’s commission. Your agent is doomed to find out and it will destroy the trust in your relationship. It is also unethical and will constitute a breach of your contract with your agent in which process you will incur more liability than gain profit from doing so.
  • There is very good reasons why an artist should think long and hard before assigning their copyright. Any demands for assignment of copyrights inevitably includes a waiver of so-called moral rights, which includes your integrity. If you assign your copyright you immediately lose control over the future use of your art work and may your work be changed, distorted or used in a context you may object to, thereby damaging your professional image and integrity.You have no remaining right to copy your own image and you may find yourself professionally competing with your own images, especially if your art works are eventually sold to an image bank and widely distributed. Instead, you could rather exploit your own art work upon retirement by selling your own works to an image bank against payment for secondary use.However, there are exceptions to the above and can people buy different kinds of licences in respect of your art work at different prices, depending on the extent of their use. Due to the fact that films involve a large number of different copyrights and for ease of administration, copyrights are usually assigned completely and as a whole. Assignment fees in respect of trademarks are generally very high due to the period of use and the importance the trademarks hold for a buyer’s brand and image.

If a client really wants the copyright in your work he or she must be prepared to pay for. Accordingly value yourself and protect your art work.

By Marietjie Botes
marietjie@dyason.co.za

Catching your employee red-handed

The saying having been caught red-handed seems to have lost its meaning as it appears you are now required to catch someone red-handed with consent or by notice.

This has been the situation for several employees in instances where an employer has installed hidden cameras without notice to the employee and having video recorded the employee without the employee’s consent thereto.

It can be argued that the lack of notice or consent has no bearing on the content captured on video, even if there was, or was no notice to the employee or consent, or no consent. The intentions of the person captured on video are clear.

The fact however is that notice or consent defeats the purpose of making a video recording in the first place as the disgruntled employee will now be aware and tread carefully. This in itself immediately changes the advantage point and causes the exercise of making a video recording futile.

Before electing whether this approach of notice or consent is required, one has to take all factors into consideration, which inter alia include the employee’s right to privacy.

The right to privacy is entrenched in section 14 of Chapter 2 of the Constitution of the Republic of South Africa’s 1996 Bill of Rights, meaning everyone has the right to privacy, which specifically includes the right not to have the privacy of their communications infringed.

All rights may however be limited in terms of section 36 of the Constitution if it is reasonable and justifiable in an open and democratic society. Needless to say, one’s right to privacy may be limited, when for example it relates to the infringement of a person’s communication, in terms of the Regulation of Interception of Communications and Provision of Communication-related Information Act 70 of 2002 (RICA).

The RICA defines communication to include both direct (which entails oral commination in the immediate presence of another person) and indirect communication (which entails the transfer of information, including a message or any part thereof be it in the form of speech, music or other sounds; data; text; visual images, animated or not; signals; or radio frequency spectrum; or in any other form or in any combination of forms, that is transmitted in whole or in part by means of a postal service or a telecommunication system).

Although Section 2 of the RICA prohibits the intentional interception of any form of communication in the course of its occurrence or transmission, provisions are made to intercept any communication, for example in the one instance upon receipt of prior written consent from one of the parties to the communication (sections 3-9 of the RICA).

One may clearly intercept communication in the instance of being a party to said communication, however the situation is complicated if a person intercepts the communication without being a party thereto such as in the case of the so-called “nanny cam”.

A “party to communication” has also been specifically defined in section 1 of the RICA as any person:

“…participating in such direct communication or to whom such direct
communication is directed; or

in whose immediate presence such direct communication occurs and is audible to the person concerned, regardless of whether or not the direct
communication is specifically directed to him or her; or

the sender or the recipient or intended recipient of such indirect
communication; or

if it is intended by the sender of an indirect communication that such indirect communication be received by more than one person, any of those recipients; or

any other person who, at the time of the occurrence of the indirect
communication, is in the immediate presence of the sender or the recipient or intended recipient of that indirect communication; and

in instances of direct communication, any person participating in such direct communication or to whom such direct communication is directed; or

the sender or the recipient or intended recipient of such indirect
communication; or

if it is intended by the sender of an indirect communication that such indirect communication be received by more than one person, any of those recipients…”

If you are not a party to the communication you are not allowed to intercept the communication or even grant consent for the interception of the communication by a third party.

This current state of affairs has left various minds frustrated as one is surely entitled to monitor your premises by way of video recording in your absence.

The issue of consent is clearly a controversial one. Many employees have been successful in getting away with “murder” so to speak, despite having been caught red-handed, to name a few for example:

In the matter of Afrox Ltd. v Laka and others 1999, 20 ILJ 1732, the labour court overturned the arbitrator’s decision regarding the inadmissibility of the video footage. The video footage was initially disallowed and later allowed on the basis that it was relevant to the case at hand.

In the Moloko v Commissioner Diale and others 2004, 25 ILJ 1067 matter the labour court, in contradiction to the arbitrator, disallowed video footage which were initially allowed of an alleged assault due to the poor quality of the video.

In the Satawu obo Assagai v Autopax 2002, 2 BALR 17 matter the arbitrator allowed video footage as evidence despite the lack of consent by the employee that the employee may be videotaped. The arbitrator was of the view that the employee’s actions were not confidential and therefore had not been prohibited and further that the Interception and Monitoring Prohibition Act (IMP Act, the predecessor to the RIC Act) did not apply strongly to civil cases;

In the Numsa obo Mbeki obo others v Shatterprufe (Pty) Ltd. 2009, 1 BALR 9 matter employees were dismissed for stealing copper cables. Video footage indicated that the employees left the premises at a time which happened to be in contradiction with the testimony of Mr Mali, who gave evidence via video. Mr Mali was however not present during the proceedings and accordingly his video evidence were regarded as hearsay.

We therefore have to wait and see whether the RICA is enforced rigorously, in comparison to its predecessor, the IMP Act which happened to be enforced fairly leniently in accordance with an article by Jan du Toit on video and audio surveillance in the workplace.

By Albert Arnold
albert@dyason.co.za