Dealing with Defective Design

To what extent is the contractor liable when he builds in accordance with the design but it is manifestly unsafe? Chris Binnington discusses whether or not the contractor is liable, outside the contract, to claims from third parties.

In the matter of SM Goldstein & Co (Pty) Ltd v Cathkin Park Hotel (Pty) Ltd & Another, reported in 2000 (Volume 4) SA 1019 (Supreme Court of Appeal), although this refers to a building contract, the principles involved are equally appropriate in the civil engineering industry where harm is caused to third parties as a consequence of the contractor executing a manifestly unsafe design.

What makes this case interesting, of course, is the fact that, in a contractual situation, it is normally accepted that the obligation of the contractor is to build in accordance with the employer’s design. To the extent that design is defective, the responsibility for the consequences of such defective design would logically devolve upon the employer and the contractor would not be responsible. I

n this particular matter, Goldstein was engaged to build a hotel owned by Cathkin Park Hotel and operated by a separate legal entity. In terms of the contract, Goldstein was instructed to build a fireplace using a Jetmaster firebox suitable for an open fire in the lobby. The Jetmaster model was specified and the layout of the fireplace was reflected on a drawing, which was approved for construction. As designed, the fireplace constituted a fire hazard in as much as combustible decorative features were to be installed near the firebox. The construction drawing clearly illustrated these decorative features to be supplied and installed by Goldstein. In addition, the drawing advised that Goldstein was to install the fireplace in accordance with the manufacturer’s instructions. These instructions were not incorporated in detail on the drawing but contained the express directive that “combustible materials should not be fitted within… 450 mm above the firebox unless adequate provision is made to insulate such materials.” As is usual in construction contracts, it was a term of the contract that Goldstein was to carry out and complete the works in accordance with the directions of the principal agent and to his reasonable satisfaction.

In addition, if Goldstein wanted to deviate from the detail of any plans issued, it was to give due notice to the principal agent. The contract also required the standard of workmanship to be of the best and recorded that one of the objectives of appointing Goldstein was its expert knowledge as building contractor. Goldstein was accordingly made responsible for all aspects of construction of the hotel, excluding design and, in particular, the contract stated that all commodities were to be fixed with care and in strict accordance with the manufacturer’s instructions and recommendations. The contract further provided that, should those instructions and recommendations conflict with the agent’s design, the agent had to be notified forthwith and, if anything was unclear, the necessary clarification had to be obtained from the agent. If necessary, a variation of the design had to be obtained from the agent. The contract further contained a liability exemption clause: “The contractor shall in no case be liable for any loss or damage to the said works, material or goods caused by an excepted peril.”

One of the excepted perils was “the design of the works by the employer’s servants or agents”. On the face of it, this excepted peril should have indemnified Goldstein from the consequences of constructing in accordance with the design of the principal agent.

Goldstein constructed the fireplace as designed without seeking any variation of the agent’s design to eliminate the fire hazard created by the fireplace. It was common cause that the design and construction of the fireplace would have been manifestly unsafe to any builder. In due course, a fire broke out as a result of the design of the fireplace and the building was extensively damaged. Goldstein was sued in the High Court on the basis of a delictual action for damages suffered as a result of the fire. Goldstein’s principal defence was that it had constructed the fireplace in accordance with the agent’s design. This defence was rejected by the High Court.

Goldstein subsequently appealed the High Court’s judgement resulting in an application to the Supreme Court of Appeal (SCA) where judgement was given in the year 2000. The SCA applied the classical test of negligence as set out in Kruger v Coetzee 1996 (2) SA 428 (A) and found that Goldstein had been negligent in constructing the fireplace. Further, as to the requirement for wrongfulness (the breach of a legal duty) necessary to meet the delictual test, that test involved a value judgement by applying, in the light of all the circumstances, the general criterion of reasonableness. The criterion was based upon considerations of morality and policy and the court’s perception of the legal convictions of the community. The fact that harm was foreseeable was also a relevant consideration.

The court found that the contractor had a legal duty to both the building owner and to third parties to refrain from building that which was manifestly unsafe. Although a builder could not be liable in delict to a building owner if the builder were contractually required to construct an unsafe structure, however improbable such a contractual term would be, Goldstein had not been required in terms of the contract to build something that was manifestly unsafe or defective (to build irrespective of safety concerns). Simple mechanisms were in place to deal with the case where the agent’s instructions conflicted with safety methods and manufacturer’s instructions. Because of the nature of the risk and the degree of foreseeability, a prima fade case of the existence of a legal duty was established. If Goldstein wished to extricate itself by relying on the building contract, it had a duty to adduce evidence in order to upset the prima fade case. However, as far as the evidence went, it established that Goldstein had not acted in terms of the contract. In other words, it had failed to bring the obvious conflict, between the manufacturer’s instructions and the agent’s design, to the attention of the agent.

Of significance was the fact that Cathkin Hotel had also employed, in addition to the agent (architect), a safety consultant and others to design, advise and supervise the works. The court found this did not absolve the contractor but merely indicated that more than one party had a legal duty towards the hotel owner and its operators in relation to the safety of the fireplace. With regard to the liability exception clause and Goldstein’s defence that the question was whether or not the damage was caused by the design of the agent, having found that the damage was caused, at least in part, by the negligence of the contractor, which in any event did not comply with its contractual duties, the clause appeared to be inapplicable. Its purpose was to protect a contractor who complied fully with its contractual obligations and placed the design responsibility where it should be, namely on the shoulders of the agent. The purpose of the clause was not to create an exemption for the contractor, which, having acted negligently, could point to the fact that the design was a contributory cause of the damage. The hotel and its operator accordingly succeeded against the contractor. The case is a salutary warning to contractors to the effect that, while they may not be liable for the design, they may still be held liable to third parties for the consequences of constructing a design where it should be obvious to a contractor that the design is manifestly unsafe. Under these circumstances, at the very least and in order to protect the contractor, it should write to the agent and point out the concerns and request an instruction as to how to proceed. As the law does not distinguish and apply different tests for emerging contractors, which might be held to have less experience than established contractors, such emerging contractors will equally be at risk should similar circumstances develop and it will be no defence to argue that their level of knowledge did not permit them to identify the manifestly unsafe nature of the work that they were required to construct.

The probability exists that, in this case, Goldstein never even consulted the manufacturer’s instructions and relied entirely on the agent’s design insofar as the location of the combustible materials was concerned.

As we have often stated, construction is a risky business and, without an awareness of their legal responsibilities, contractors are going to be increasingly exposed to financial liability.

Chris Binnington is the Managing Director of Binnington Copeland & Associates

THE CIVIL ENGINEERING CONTRACTOR NOVEMBER 2006