SUGAR DEVELOPMENT CORPORATION v CONSTRUCTION ENGINEERS AND BUILDERS LTD 1986 TLR 172 (CA)

SUGAR DEVELOPMENT CORPORATION v CONSTRUCTION ENGINEERS AND BUILDERS LTD 1986 TLR 172 (CA)

Court Court of Appeal of Tanzania - Dar Es Salaam

Judge Mustafa JJA, Makame JJA, Omar JJA

H

CIVIL APPEAL 3 OF 1986

Flynote

I Contract - Building Contract - Construction of "repetition of default" - Whether

repetition of a default can have exclusive reference to the date of its first occurrence.

1986 TLR p173

-Headnote

A The appellant, SUDECO, contracted with the respondents, Builders, for the latter

to erect a multistorey building for SUDECO in Dar es Salaam. After proceeding with

the works for sometime the respondent Builders defaulted. In terms of Clause

25(1)(b) of the Agreement the Architect served notice of default on the Builders on

7.6.82 on the ground of the B Builders' "failure to proceed regularly and diligently

with the works". On 26th January, 1983 the Architect found that such default was

repeated and on 4.2.83 notice was served on the Builders terminating the contract. In

April, 1983 the appellant engaged another contractor to erect the building.

C The Builders sued SUDECO for breach of contract. The matter was, in terms of

the arbitration clause in the Agreement, eventually referred to an arbitrator who

found in favour of SUDECO. On appeal to the High Court it was held that the notice

of termination by the appellant, SUDECO, was invalid on the ground that there was

no evidence that a repetition of the default had occurred within 10 days when the

notice of termination was given. The High Court D reversed the decision of the

arbitrator.

On further appeal to the Court of Appeal of Tanzania it was argued for the Builders

that there was no evidence that the notice of termination of 4.2.83 was made within

10 days of the repetition of the default. It was not established that the E default

discovered on 26th January, 1983 was repeated the first time that day.

Held: (i) a repetition of a default can have no exclusive reference to the date of its first

occurrence, it is repeated every time the default occurs; F

(ii) the repetition of a default is the act of the default itself being repeated, and

once the default is repeated, then notice of termination within 10 days of such

occurrence complies with the provisions of clause 25(1)(b);

(iii) the notice of termination given on 4.2.83 was within 10 days of the

repetition of default on 26.1.83, and that was in terms of clause 25(1)(b) of the

Agreement. G

Case Information

Order accordingly. H

No case referred to.

T. L. Mkude, for the appellant

M.A. Lakha, for the respondent I

1986 TLR p174

MUSTAFA JA

[zJDz]Judgment

A Mustafa, J.A.: The appellant (Sugar Development Corporation, hereinafter called

the Corporation) had entered into an agreement with the respondent (Construction

Engineers and Builders Limited, hereinafter called the Builders) for the Builders to

erect a multistorey building for the Corporation in Dar es Salaam. The Agreement

(hereinafter called the B Agreement) was dated 19.9.80, the contractual sum was

about 33.5 million shillings, the completion date was 3.1.83, the time for completion

was 120 weeks, from 15.9.80 to 3.1.83. Shortly after the Builders had commenced

building a variation of the Agreement was made between the Corporation and the

Builders by which additional storeys were to be C added to the original building and

the price was increased to about 52.7 million shillings and the completion date was

extended to 3.7.84. The Agreement was on the lines of the usual Royal Institute of

British Architects (R.I.B.A) form of contract.

D In terms of clause 25 (1) (b) of the Agreement the Architect served notice of

default on the Builders on 7.6.82 on the ground of the Builders "failure to proceed

regularly and diligently with the works". In January, 1983 the Architect found that

such default was repeated and on 4.2.83 notice was served on the Builders

terminating the contract. In April, 1983 E the Corporation employed another

contractor to erect the Building.

The Builders filed a suit in the High Court for breach of contract, and the matter was,

in terms of the arbitration clause in the Agreement, eventually referred to a single

arbitrator, Mr. A.G.I. Shayo, then President, Institute of Engineers, F Tanzania, for

arbitration.

The Arbitrator heard evidence and made his award. The Arbitrator found in favor of

the Corporation and the Builders appealed to the High Court alleging misconduct on

the part of the Arbitrator and asking for the award to be set aside. G The High Court

(Mapigano, J.) held that the notice of termination by the Corporation was invalid and

that the Arbitrator had misconducted himself. The judge, apart from remitting the

amount claimed for compensation to the Arbitrator for a fresh hearing, in effect set

aside the award. From that Ruling the Corporation has appealed to this Court. H

In his award the Arbitrator made a number of findings. The main ones were:

(1) The Builders' responsibility was limited to the scope of works as

defined in the original Agreement of 19.9.80 including any I variations that were

issued but did not extend to the overall

1986 TLR p175

MUSTAFA JA

A increased scope of work. The sum involved would be Shs. 33.54

million less Shs. 8.04 million for supplies and sub-contracts, i.e. Shs.25.5 million only.

(2) The Architect's notice of default dated 7.6.82 was valid.

(3) That there was an element of negligence on the part of the Architect in

dealing with applications for extension of time by the Builders. B

(4) The notice of termination of 4.2.83 issued by the Corporation to the

Builders was in conformity with the Agreement and was valid.

(5) In view of the finding that the termination was valid there was no

point in considering the issue of extension of time. C

(6) The Builders to compensate the Corporation as follows:

(i) extra cost of completing works 38,384,558.45

(ii) extra cost of consultant's fee 3,294,409.30 D

41,678,967.75

(7) The Corporation to return to the Builders the equipment and tools in

good condition, fair wear and tear excepted, on the completion of the work. E

The judge found that the Arbitrator had (1) misconstrued clause 25 (1) (b) of the

Agreement, and he held that the notice of termination given by the Corporation to

the Builders was bad, (2) that the Arbitrator did not adequately consider the Builders'

application for extension of time which was of vital importance and (3) the amount

awarded to the Corporation F was unwarranted. He found that the Arbitrator had

misconducted himself and he set aside the award and directed G

(a) The Builder's plant, equipment and tools be released forthwith to the

Builders.

(b) The award concerning compensation be set aside and will be the

subject of a new hearing. H

(c) The costs of the application be borne by the Corporation.

The Corporation appeals to this Court on two main grounds. Mr. Mkude for the

Corporation submitted that the judge I had erred in holding first, that the

Agreement had been unlawfully terminated

1986 TLR p176

MUSTAFA JA

A and secondly that the Arbitrator did not adequately consider the question of

extension of time.

On the issue of termination, the point turns on the construction of clause 25 (1) of the

Agreement. It reads:

B 25. (1) If the Contractor shall make default in any one or more of the

following respects, that is to say:

(a) if he without reasonable cause wholly suspends the carrying out of the

Works before completion thereof, or

C (b) if he fails to proceed regularly and diligently with the Works,or

(c) if he refuses or persistently neglects to comply with a written notice

from the Architect requiring him to remove defective work or improper materials or

goods and by such refusal or neglect the Works are materially affected, or D

(d) if he fails to comply with the provisions of clause 17 of these

Conditions,

E then the Architect may give to him a notice by registered post or recorded

delivery specifying the default, and if the Contractor either shall continue such

default for fourteen days after receipt of such notice or shall at any time thereafter

repeat such default (whether previously repeated or not), then the Employer without

prejudice to any other rights or remedies, may within ten days after such F

continuance or repetition by notice registered post or recorded delivery forthwith

terminate the Employment of the Contractor under this Contract, provided that such

notice shall not be given unreasonably or vexatiously ... G

The Arbitrator gave detailed reasons for his finding. As regards the notice of default,

he was satisfied that the default notice of 7th June, 1982 was reasonably issued, the

default being that the Builders failed to proceed regularly and H diligently with the

works.

The Arbitrator held that the default was repeated on 26th January, 1983 when, on a

site visit, it was discovered that the labour force had dropped from 49 to 12, and there

was no foreman on the site. And by a letter of 28th January, 1983, the Builders stated

that building on the site had stopped. The notice of termination was given on 4.2.83,

within 10 days I of the repetition of the default on

1986 TLR p177

MUSTAFA JA

A 26th January, 1983, and 28th January, 1983.

The judge was not satisfied as to when the Builders had repeated the default, which in

his view, was crucial, as the notice of termination had to be given within 10 days of

the repetition of the default.

B Mr. Lakha for the Builders submitted as follows: First even if the default notice of

7.6.82 was valid, he contended that the notice of termination of 4.2.83 was not made

within 10 days of the repetition of the default. He said that there could be no

continuance of the default the subject of the notice of 7.6.82, as there was an interval

of 8 months; and during such interval the Builders had done satisfactory work. There

could only be a repetition. It was not established that the default C discovered on

26th January, 1983 was repeated the first time that day. To be a repetition Mr. Lakha

contended that the default must have occurred the first time after a lapse of time. If

the occurrence had happened on an earlier date it would be continuation, not a

repetition. He emphasised that "continuance" and "repetition" are mutually exclusive,

a D continuation cannot be a repetition.

I am not persuaded by this argument, ingenious though it is. If after a default has

been established, and it has ceased or E has been remedied, a repetition of such

default occurs when it takes place again. It matters not when one becomes aware of

the default, whether on the first day it was repeated or on some subsequent date, so

long as the default F continues. A repetition of a default can have no exclusive

reference to the date of its first occurrence, it is repeated every time the default

occurs. The repetition of a default is the act of the default itself being repeated, and

once the default is repeated, then a notice of termination within 10 days of such

occurrence complies with the provisions of clause 25 (1) (b).

Mr. Lakha also contended that there was no or no sufficient evidence of the default

being repeated. The Arbitrator had G relied on two matters for his finding that the

default was repeated, (1) the site visit on 26.1.83 and (2) the Builders' letter of 28.1.83.

Mr. Lakha submitted that the site visit was referred to only in the final written

submission to the Arbitrator made by the Corporation and was not a matter given in

evidence. As regards the letter of the Builders Hdated 18.1.83 he submitted that the

sentence "the project has come to a standstill", should not be taken out of its context.

The Builders were complaining of the attitude and stance adopted by the Architect in

respect of the work done by the Builders. I

Mr. Mkude for the Corporation referred to the large number

1986 TLR p178

MUSTAFA JA

A of site visits made as mentioned in minutes in the record prepared for the

Arbitrator. These were not in dispute and in fact he stated there was evidence

adduced before the Arbitrator of such visits. The site visits, at that period, used to be

about once every week or ten days. The letter of 28.1.83 clearly established that the

work had come to a standstill. B

The Arbitrator was satisfied that the site visit of 26.1.83 did take place. There was

certainly evidence to support his finding. He construed the letter of 28.1.83 as

evidence that at that time the work on the site had stopped.

C On this point the judge stated that he was not satisfied as to when the Builders

repeated the default. In my opinion if he had properly directed his mind to the

Arbitrator's finding that such evidence was to be found in the site visit on D 26.1.83

when the labour force had fallen to 12 and the foreman was absent, as well as to the

admission in the Builder's Letter of 28.1.83 that work had come to a standstill, I think

he would have concluded that the default was repeated on 26.1.83 and 28.1.83. The

default, let me repeat, was failure to proceed regularly and diligently with the works".

The notice of termination was given on 4.2.83, within 10 days of the repetition of

such default in terms of Clause 25 (1) E (b) of the agreement.

On the issue of extension of time Mr. Lakha submitted that the Arbitrator had found

that the Builders had applied to the Architect for extension of time for 377 days. The

Arbitrator was of the view that the Builders were entitled to some at F least of those

days, and that there was an element of negligence on the part of the architect in

dealing with such application for extension of time. I am not at the present

concerned with another extension for 254 days which relates to the extra work

connected with the variation in the original Agreement. Mr. Lakha submitted that if

the Builders were G granted the full extension of time applied for, it could be found

that there was no undue delay by the Builders in carrying out their building work.

He went into figures and time frames and sought to establish that if the Builders had

obtained such full extension there would be no default. He contended that the

Arbitrator ought to have decided how much extra H time was due to the Builders, so

as to assess the progress of the work done, but the Arbitrator had failed to do so. He

submitted that this matter of extension of time should be remitted to the Arbitrator

for a fresh hearing. From Mr. Lakha's arithematical calculation he estimated that at

the time the Agreement was I

1986 TLR p179

MUSTAFA JA

A terminated about two thirds of the work in the original Agreement had been

completed.

Mr. Mkude, from his arithmetical calculation, claimed that by the time the agreement

was terminated, only one third of the work in the original Agreement was completed.

He maintained that in any event the default was basically concerned with B the

progress aspect of the work, that work had to be done "regularly and diligently". The

issue of when the work was to be completed has to be viewed in the context of the

progress of the work being carried out "regularly and diligently". The evidence, he

contended, established that work had come to a standstill on 18.1.83. The issue of

extension of time C was not of importance in the numerical context, but in the

context of the concept of proceeding with the work "regularly and diligently". He

admitted that there was no evidence based on quantities about the portion of work

completed when the Agreement was terminated. The estimates given were based on

the amounts of money paid and the balance remaining unpaid. D

On the question of extension of time the judge was of the view that it was of vital

importance and deserved a "deep and careful consideration". He thought that if the

Arbitrator had granted the full extension of time asked for by the Builders, E he

would have dismissed the Corporation's contention that he had committed the

default of failing "to proceed regularly and diligently with the works". The judge did

not hold that the claim for extension was well-founded, but he held that the F

Arbitrator did not adequately consider this issue. The judge however had held that

the notice of termination was bad on the ground that there was no evidence that a

repetition of the default had occurred within 10 days when the notice of termination

was given. He did not link this question of the extension of time directly with the

issue of the validity or otherwise of the notice of termination. G

The Arbitrator dealt in great detail in his award with the extension of time issue. He

dealt with it when considering the issue of extension of time proper and in

connection with the issue of the validity of the notice of termination of 4.2.83. He

considered the reasons for some of the extra time asked for as being due to lack of

materials, and he concluded that the H "conditions which existed during the

contract period as far as the availability of the said material is concerned, were not

different from those that existed in 1981, when the Contractor prepared his tender

bid". He went carefully into the arguments and submissions put forward by the

parties, and the Arbitrator devoted several pages in his award to this I matter.

1986 TLR p180

MUSTAFA JA

A The Arbitrator took into account all the relevant factors, and in arriving at his

conclusion he took note of the extension of time claimed by the Builders, the reasons

advanced by the Builders for the rate of progress and so on and so forth. The

Arbitrator was experienced in the matters in dispute between the parties, and he gave

sound reasons for his conclusion. I can find nothing that indicated that the Arbitrator

had misdirected himself or had gone wrong, and, for my B part, I am satisfied that

the Arbitrator was entitled, on the evidence before him, to have reached the

conclusion that despite the right of the Builders to some of the extra time he had

asked for, it would not have really mattered for it was C clear that the Builders had

failed to proceed regularly and diligently with the works. I do not agree with the

judge when he found that the Arbitrator did not adequately consider the Builders'

application for extension of time. In my view that point was adequately considered

by the Arbitrator. D

I now come to the matter of the monetary award made by the Arbitrator. The judge

found that the said award was unwarranted and directed that this issue be remitted to

the Arbitrator for a fresh hearing. I think the judge was right. The Arbitrator had

clearly erred in his assessment of the sum found due to the Corporation. He gave no

clear indication as to E how he had arrived at his figure. Mr. Lakha submitted, and

Mr. Mkude eventually agreed, that this matter be remitted for a fresh hearing.

In deciding this matter of the monetary award the Arbitrator should take into account

the following, among other, factors: F

(1) The Arbitrator had clearly found that the Builders' responsibility was

limited to about 25.5 million shillings (to the scope of works as defined in the original

Agreement)

G (2) The Builders had been paid about 12.8 million shillings for work done,

leaving a balance of about the same sum.

(3) The sum paid to the Builders includes some of the extra work as

contained in the variation to the original Agreement.

(4) An estimate has to be made as to when the works in the original

Agreement would be completed if they have not yet been completed. In this

connection, it must be kept in mind that, the new contractor would be erecting on

the basis of the H Agreement as varied including the extra work. Any extra time

due to the Builders has to be computed and taken into account. I

(5) If there is an element of inflation in connection with the

1986 TLR p181

MUSTAFA JA

A cost of the uncompleted work in the original Agreement, the escalation

due to inflation assessed at 15% as contained in page 145 of the record of appeal will

be of relevance.

(6) Whether liquidated damages at Shs.6,000/= per day of delay as

contained in Clause 22 of the Agreement is applicable.

B In connection with the Builders' plant, equipment and tools, the judge had

ordered them to be released by the Corporation to the Builders "forthwith", i.e. on the

date of his judgment, 21st September, 1985. The judge made that order probably on

the ground that the termination notice was invalid. That order of the judge cannot

now stand and I C would restore the order of the Arbitrator on this matter. In any

event the Arbitrator will have to fix a completion date in respect of the uncompleted

work involved in the original Agreement, either actual or notional. The return of

such plant and equipment would be related to such a date. D

In the final analysis, I would set aside the order and ruling of Mapigano, J., except for

his order that the award in respect of monetary compensation made by the Arbitrator

in his Award be set aside and be the subject of a fresh hearing.

I would restore the findings of the Arbitrator that the notice of default of 7.6.82 and

the notice of termination of 4.2.83 E were valid and legal. I also would restore the

order of the Arbitrator that the costs of the Arbitration before him be borne by the

Builders, as well as his order in respect of equipment and plant.

F In regard to the fresh hearing on the issue of the monetary award, I would order

that the matter be arbitrated by the same Arbitrator in terms of Section 14 of the

Arbitration Ordinance. He should file his award within 3 months of the date of the

order remitting the award. The Arbitrator should take note of the factors in regard to

the monetary award mentioned earlier in this judgment. G

In the result in my opinion, the appellant has succeeded to the extent as above stated.

I would award the appellant half the costs of this appeal. I would not certify for two

advocates. I would make no order in respect of the costs in the High Court.

As the other members of the Court agree, it is so ordered. H

Order accordingly.

1986 TLR p182

A