Adel Builders (Pty) Ltd v Dr J G T Thompson

Adel Builders (Pty) Ltd, a building contractor, undertook to construct a house for Dr Thompson in Port Elizabeth under a written building contract. The appellant sued for the balance of the contract price, and the respondent counterclaimed for damages alleging defective workmanship in various material respects. The proceedings in convention were later abandoned. Appellant purported to submit to judgment through a "Consent to Judgment" document on 16 March 1994, which admitted liability for the "fair and reasonable cost" of remedial work but did not specify an amount. The counterclaim was subsequently amended to include a claim for consequential damages, an increased amount to allow for escalation in building costs, and interest "a tempore morae". The parties agreed that as at February 1992, the respondent's damages for necessary remedial work amounted to R330,000, of which R200,000 represented work not yet done by that date. They also agreed on escalation costs by the date of trial in June 1997.

• Whether consequential damages were claimable under the building contract
• Whether the respondent was entitled to allowance for escalation in computing damages
• Whether section 2A of the Prescribed Rate of Interest Act, 55 of 1975 (which came into operation on 5 April 1997) applied to damages claims pending before that date
• Whether the trial court properly exercised its discretion in awarding pre-judgment interest from 1 February 1992
• What constituted the date of 'demand' for purposes of calculating pre-judgment interest

Both the appeal and the cross-appeal were dismissed with costs.

Section 2A of the Prescribed Rate of Interest Act, 55 of 1975 applies to unliquidated damages claims that were pending at the time the section came into operation on 5 April 1997. The discretion afforded to courts under section 2A(5) to determine the date from which pre-judgment interest runs is a broad, value-based discretion that does not involve technical evidential issues or place any onus of proof on parties. In exercising this discretion, courts should consider what is just in all the circumstances, including factors such as delay attributable to either party and opportunities to make payment or tenders. A claimant is not entitled to both pre-judgment interest and an award for cost escalation, as this would constitute double compensation for the effects of delay and currency depreciation. Where a counterclaim is amended but remains essentially the same claim in nature and substance (merely adding details or alternative bases for the same underlying breach), the original counterclaim constitutes the relevant demand for purposes of calculating pre-judgment interest.

The Court observed that section 2A was obviously aimed at alleviating the plight of a plaintiff who has to wait a substantial period of time to establish a claim through no fault of their own and is paid in depreciated currency, referring to remarks in SA Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A). The Court noted that when appellant admitted liability in the "consent to judgment" but carefully avoided admitting liability in a specified amount, this effectively drove the respondent to continue litigation to have costs judicially quantified. The Court commented that it was not surprising the respondent declined the appellant's tender to perform the remedial work itself given the history of defective workmanship. The Court observed that appellant, being in the relevant trade, should have been able to assess the costs referred to in the consent to judgment and make a monetary tender or payment into court on its own initiative.

This case is significant in South African law for clarifying the application and interpretation of section 2A of the Prescribed Rate of Interest Act, 55 of 1975, particularly regarding pre-judgment interest on unliquidated damages. It confirmed that section 2A applies to claims pending at the time it came into force, following the David Trust precedent. The judgment also provides important guidance on the exercise of judicial discretion under section 2A(5) in determining the date from which pre-judgment interest should run, emphasizing that this is a broad discretion aimed at achieving justice and does not involve technical evidential burdens. The case illustrates the court's recognition that pre-judgment interest serves to compensate plaintiffs who must wait substantial periods to establish their claims and receive payment in depreciated currency. It also clarifies that a claimant cannot receive both interest and compensation for escalation costs, as this would amount to double compensation for the same loss.