About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2016
>>
[2016] ZASCA 28
|
|
Nurcha Finance Company (Pty) Ltd v Oudtshoorn Municipality (20821/2014) [2016] ZASCA 28 (23 March 2016)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 20821/2014
In
the matter between:
NURCHA
FINANCE COMPANY (PTY) LTD
APPELLANT
and
OUDTSHOORN
MUNICIPALITY
RESPONDENT
Neutral
citation:
Nurcha
Finance Company (Pty) Ltd v Oudtshoorn Municipality
(20821/2014)
[2016] ZASCA 28
(23 March 2016)
Coram:
Ponnan,
Pillay and Petse JJA and Fourie and Tsoka AJJA
Heard:
1
March 2016
Delivered:
23
March 2016
Summary:
Undertaking
to pay amounts due in terms of a building contract to third party ─
failure to do so giving rise to claim for
damages ─ claim not
precluded by virtue of subsequent cancellation of building contract.
ORDER
On
appeal from:
Western
Cape Division of the High Court, Cape Town
(Griesel
J sitting as court of first instance):
1
The appeal is upheld with costs, including the costs consequent upon
the employment of two counsel.
2
The order of the court below is set aside and substituted by the
following order:
‘
Judgment
is granted in favour of the plaintiff as follows:
(a)
The defendant is ordered to pay the plaintiff the sum of
R2 692 467.43, together with interest thereon at the rate
of 15,5 per cent per annum calculated from date of service of summons
to date of final payment.
(b)
The defendant is ordered to pay the plaintiff’s costs of suit,
including all reserved costs save for those occasioned
by the
postponement of the matter on 12 March 2012 which are to be paid by
the plaintiff, such costs, where applicable, to include
the costs of
two counsel.’
JUDGMENT
Fourie
AJA (
Ponnan,
Pillay and Petse JJA and Tsoka AJA
concurring):
[1]
This appeal has its origin in an opposed application brought in the
Western Cape Division of the High Court, Cape Town, which
was
subsequently referred to trial. After the exchange of pleadings the
parties identified two questions of law which they agreed
to place
before the trial court by way of a stated case in terms of Uniform
rule 33(4). The matter proceeded before Griesel J who
ruled in favour
of the respondent, but granted the appellant leave to appeal to this
court.
[2]
The factual background to the appeal appears from the following
agreed facts forming part of the stated case.
[3]
During 2007 the respondent, Oudtshoorn Municipality (the
municipality), awarded a tender for the construction of 663 houses
(the project) to Silver Buckle Trade (Pty) Ltd t/a Yethu Projects
(Yethu).
[4]
In November 2007 Yethu applied to the appellant, Nurcha Finance
Company (Pty) Ltd (Nurcha), for bridging finance to enable it
to
complete the project. Consequently, during December 2007, Nurcha and
Yethu concluded a bridging finance agreement (the finance
agreement).
[5]
Pursuant to the conclusion of the finance agreement, Yethu issued an
irrevocable instruction to the municipality advising it
that Yethu
had concluded the finance agreement with Nurcha and had ceded to
Nurcha all payments payable to Yethu by the municipality
in respect
of the project. Yethu further instructed the municipality that it
should ‘from this day forward as per the instructions
of
[Nurcha]’ pay all moneys owing to Yethu in respect of the
project into a nominated bank account in the name of Yethu (the
project account). The project account was the only account into which
the municipality was to pay moneys due to Yethu and this
instruction
could only be varied with Nurcha’s written consent.
[6]
Pursuant to the instruction, the municipality, duly represented by
its municipal manager, gave a written undertaking in favour
of Nurcha
(the undertaking), in terms of which the municipality irrevocably and
unconditionally consented to the cession of Yethu’s
rights
arising out of the project to Nurcha. The municipality further
consented irrevocably and unconditionally to Yethu pledging
and
ceding
in
securitatem debiti
to
Nurcha all of its rights to any moneys payable by the municipality,
and it irrevocably and unconditionally undertook, in favour
of
Nurcha, to pay all moneys due and payable to Yethu into the project
account exclusively.
[7]
In giving the undertaking the municipality accepted the instruction
and thereby concluded an agreement with Nurcha upon the
terms set out
in paragraphs 5 and 6 above.
[8]
The municipality had appointed Arcus Gibb (Pty) Ltd (Arcus Gibb) as
project managers for the project. Arcus Gibb, together with
the
municipality’s building control officer, were responsible for
assessing and certifying the work completed on the project
by Yethu.
Arcus Gibb and/or the municipality’s building control officer
would inspect all work completed by Yethu pertaining
to the project
and certify work completed during the course of the project, by
issuing certified payment certificates upon which
payment was to be
made by the municipality into the project account in accordance with
the undertaking.
[9]
Nurcha relied upon the certified payment certificates in allowing
further draw downs and loan advances to Yethu to enable it
to
complete the project for the municipality. During the period October
2007 to the end of August 2009, Arcus Gibb and/or the municipality’s
building control officer certified that Yethu had completed work in
relation to 39 payment certificates. The municipality effected
payment in respect of 36 of the certificates into the project
account, but failed to make payment of three certificates, being
certificates 7, 8 and 20, into the project account. Instead, the
municipality made payment in respect of the three certificates
into a
different account held by Yethu. In particular, the municipality
failed to pay the amounts of R1 493 638.90 (certificate
7),
R2 086 204.10 (certificate 8) and R635 076.49
(certificate 20) into the project account.
[10]
Yethu subsequently failed to complete the project and the
municipality cancelled the contract with Yethu due to the latter’s
breach of contract. Yethu was then placed under final liquidation by
the Western Cape High Court on 14 April 2010. The municipality
appointed another contractor to complete the project. As at the date
of the stated case, Nurcha had not recovered any further payment
from
the insolvent estate of Yethu.
[11]
Nurcha claimed damages from the municipality for breach of contract
in the amount of R2 692 467.43, being the balance
owing to
Nurcha in terms of the finance agreement, by virtue of the
non-payment of certified payment certificates 7, 8 and 20.
[12]
Nurcha’s submissions, as plaintiff, were recorded as follows in
the stated case:
(a)
In terms of the agreement between Nurcha and the municipality, and on
a proper interpretation
thereof, once payments had been certified,
the money so certified became due, owing and payable and had to be
paid into the project
account;
(b)
The parties’ agreement prohibited the municipality from making
any payments to Yethu
into any account other than the project
account, for the duration of the project in respect of work which had
been certified for
payment. The municipality breached the agreement
and is liable to Nurcha for the payment of damages in the aforesaid
amount.
(c)
In any event, the municipality was aware of the cession of Yethu’s
right to
payments under the project to Nurcha and was legally bound
to give effect thereto by making payment of the amounts certified in
terms of the payment certificates, to Nurcha into the project
account.
[13]
The submissions of the municipality, as defendant, were recorded as
follows in the stated case:
(a)
Nurcha’s claim is founded on the non-payment of the payment
certificates into the
project account.
(b)
The payment certificates constituted claims for pre-payments on
payment of the contract
sum.
(c)
Due to the cancellation of the contract between Yethu and the
municipality, Yethu
could not and did not complete the project and
did not fulfil its contractual obligations in terms thereof.
(d)
Yethu accordingly lost its contractual standing to claim for payment
of the contract sum
as well as all pre-payments. The payment
certificates are therefore no longer prima facie proof that amounts
reflected therein
are due and payable to Yethu; and
(e)
Nurcha
ipso
facto
lost its right to rely on non-payment of the certificates into the
project account due to the breach of the agreement between Nurcha
and
the municipality, giving rise to a claim for damages.
[14]
The legal issues arising from the stated case which the court a quo
was required to determine, were the following:
(a)
Is Nurcha entitled to rely on the non-payment of payment certificates
7, 8 and 20 into the
project account, as a basis for its claim for
damages?
(b)
If so, whether it is open to the municipality as a matter of law to
dispute its liability
for payment of those payment certificates on
the basis that they were not validly issued?
[15]
Finally, the parties agreed that, if the court a quo were to find in
favour of Nurcha in respect of both questions presented
to it for
determination, Nurcha was entitled to judgment in terms of prayers A,
B and C of its particulars of claim.
[16]
The trial court answered the first question posed in the negative and
the second question accordingly fell away. In effect,
the trial judge
held that Nurcha was not entitled as a matter of law to rely on the
municipality’s failure to make payment
of the amounts certified
under certificates 7, 8 and 20 into the project account, as a basis
to claim damages from the municipality.
[17]
In arriving at this finding the trial judge, firstly, held that the
municipality and Yethu had not agreed that the issuing
of a payment
certificate would be regarded as proof of what was due and payable to
Yethu under their contract. Secondly, the trial
court held that, as
Nurcha derived its claim from Yethu in circumstances where Yethu, by
virtue of the cancellation of the building
contract, can no longer
enforce a claim against the municipality on the basis of interim
payment certificates, Nurcha is left without
a claim against the
municipality.
[18]
In the latter regard the court a quo relied on the decision in
Thomas
Construction (Pty) Ltd (in liquidation) v Grafton Furniture
Manufacturers (Pty) Ltd
1986
(4) SA 510
(N) (confirmed on appeal at
1988 (2) SA 546
(A)), in which
it was held that payment certified in an interim payment certificate
is not (subject to any contrary provision in
the underlying contract
between the employer and the contractor) regarded as compensation for
a completed segment of the work.
It is treated as provisional and
subject to adjustment and re-adjustment in subsequent certificates.
This stems from the principle
that payment ultimately depends on the
delivery of a finished product of work. Therefore, the employer who
makes payment in advance
on a contract sum that is dependent upon
completion of the work, does so in the expectation that the
contractor will finish the
work; and the contractor who claims an
interim payment thereby confirms that he or she is ready, willing and
able to do so. From
this it follows that, upon the cancellation of
the underlying contract, the employer’s legitimate expectation
of the continued
performance of the work by the contractor, is
disrupted. The contractor is no longer able to complete the work and
should therefore
be disqualified from insisting on payment to be made
by the employer in terms of interim payment certificates. This is so
as the
claim on the interim payment certificate remains in essence a
claim on the contract. Cancellation of the contract strikes at the
very foundation of the claim and therefore debars a claim based upon
the interim payment certificate. The contractor then has to
look at
remedies other than the payment certificate to exact compensation for
work actually done in terms of the contract (cf
BK
Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk
1979
(1) SA 391
(A) in which a claim for a reduced contract price for
incomplete performance under a bilateral contract was allowed on
considerations
of fairness).
[19]
Counsel for the municipality, whilst contending that the trial court
had correctly answered the first question for determination
in the
negative, disavowed reliance on the trial judge’s reasoning in
support of that conclusion. There is no merit in the
first ground
upon which the trial court found in favour of the municipality,
namely that the parties had not agreed that the issuing
of a payment
certificate would be proof of what was due and payable to Yethu under
the building contract. It is trite that interim
payment certificates
of the kind in question provided Yethu with a self-standing and
distinct cause of action which could
be enforced without any
need for Yethu to go beyond the certificates or to rely on the
underlying building contract. See
Mouton
v Smith
1977 (3) SA 1
(A) at 5C-E;
Thomas
Construction
(A)
at 562E-F. See also the analogous status of ‘on demand’
guarantees, as discussed in
State
Bank of India v Denel
SOC
Limited
[2014]
ZASCA 212
(3 December 2014);
[2015] 2 All SA 152
(SCA).
[20]
Turning to the second ground upon which the trial judge found in
favour of the municipality, counsel for the municipality,
as I
understood him, pinned his colours to the mast of an adapted version
of the trial judge’s second ground. His submission
proceeded
along the following lines: In claiming as it did, Nurcha implied that
the amounts certified in the payment certificates
constituted moneys
due and payable to Yethu in terms of the building contract. However,
by reason of the cancellation of the building
contract prior to the
issue of summons, the payment certificates, at the time of summons
being issued, no longer constituted proof
of indebtedness to Yethu in
terms of the building contract. Therefore, the submission continued,
after the cancellation of the
building contract prior to the
completion of the work, Nurcha’s cause of action became one
based on enrichment. As Nurcha’s
particulars of claim do not
incorporate an alternative claim based on enrichment, it is not
entitled to rely on the non-payment
of the payment certificates into
the project account, as a basis for its claim for damages against the
municipality. In support
of this submission counsel for the
municipality, as was the case with the trial court, set considerable
store by the decisions
in
Thomas
Construction
.
[21]
In my view the approach of the court below, as well as the approach
of the municipality on appeal, failed to take proper account
of the
true nature of Nurcha’s cause of action. Its cause of action is
not that of a contractor claiming payment for work
done under a
building contract. As rightly conceded by the municipality, Nurcha’s
cause of action is founded on the undertaking
of the municipality to
pay all moneys due and payable by it to Yethu, as and when they fell
due, into the project account. Therefore
Nurcha’s claim is not
based on any payment certificate as such ─ its claim is made in
terms of the municipality’s
undertaking to make all payments
due and payable in terms of the building contract with Yethu, to
Nurcha and not to anyone else.
Furthermore, the municipality’s
obligation to make the payments to Nurcha arose from the acts of
payment under the payment
certificates (which payments were made by
the municipality prior to the cancellation of the building contract
with Yethu), and
was not dependent upon the validity or ultimate
status of the payment certificates. Put differently, upon the amounts
being certified
as due and payable in terms of the relevant payment
certificates, the municipality was contractually obliged to pay the
amounts
into the project account, and its failure to do so, by paying
same into another account, constituted a breach of contract. As
submitted
on behalf of Nurcha, any claims that the municipality and
Yethu may have against each other in terms of the building contract
between
them, or on any other ground, are
res
inter alios acta
as regards the municipality’s obligations under its agreement
with Nurcha.
[22]
From the above it is immediately apparent that the facts in
Thomas
Construction
differ markedly from those in the instant case. In the former the
court had to consider whether a claim in terms of a (as yet unpaid)
payment certificate issued to a contractor under a building contract,
survived the subsequent cancellation of the building contract.
In the
instant matter there is no relationship of contractor and employer
under a building contract between Nurcha and the municipality.
As
explained earlier, Nurcha’s claim is based on an independent
agreement concluded with the municipality in terms of which
the
municipality contractually undertook to pay all moneys due and
payable by it to Yethu, into the project account for the benefit
of
Nurcha. Payment certifcates 7, 8 and 20 certified amounts due for
payment, which were paid by the municipality prior to the
cancellation of the building contract, but payment was not made into
the project account and therefore the municipality acted in
breach of
the contractual undertaking made to Nurcha.
[23]
I fail to comprehend why (as submitted on behalf of the municipality)
the cancellation of the building contract between the
municipality
and Yethu, prior to the issue of summons by Nurcha, resulted in the
demise of Nurcha’s claim for contractual
damages. What makes
this submission even more startling, is the concession by the
municipality that, prior to the cancellation
of the building
contract, it would have had no defence against Nurcha’s claim
for damages. To my mind, the subsequent cancellation
of the building
contract cannot legally impact upon the nature and extent of the
obligation of the municipality vis-à-vis
Nurcha and somehow
transform Nurcha’s claim for damages to one which ‘has
become determinable only on the basis of
enrichment’.
[24]
I understood counsel for the municipality’s submission to be
that, subsequent to the cancellation of the building contract,
any
indebtedness of the municipality to Nurcha was to be determined only
on the basis of the municipality’s indebtedness
to Yethu.
Differently put, the submission is that the parties intended that,
upon the cancellation of the building contract, the
municipality
would only be liable to Nurcha to the extent that the municipality
may have been unjustly enriched at the expense
of Yethu.
[25]
This submission, once again, fails to take proper account of the fact
that Nurcha’s cause of action is based on the municipality’s
breach of contract vis-à-vis Nurcha, by failing to make the
payments in respect of certificates 7, 8 and 20 into the project
account, giving rise to a claim for damages arising from the breach
of contract. This cause of action arose, at the latest, upon
the
municipality’s failure to make payment thereof into the project
account, before the cancellation of the building contract
between
Yethu and the municipality. Whether or not the municipality is liable
to Yethu for unjustified enrichment due to the premature
cancellation
of the building contract (on the
BK
Tooling
basis or on the basis of any of the other
condictiones
recognised in our law), is legally irrelevant for the determination
of Nurcha’s claim for damages arising from the breach
of a
separate contract concluded between the municipality and Nurcha.
[26]
In the result I find that Nurcha is entitled to rely on the
municipality’s breach of the agreement (ie the non-payment
of
the amounts certified in terms of payment certificates 7, 8 and 20
into the project account) as a basis for its claim for damages
against the municipality. I therefore conclude that the first
question of law ought to have been answered in the affirmative.
[27]
This brings me to the second question posed, namely whether it is
open to the municipality to dispute its liability to Nurcha
on the
basis that the relevant payment certificates had not been validly
issued. From the bar, in this court, counsel for the municipality
accepted that, strictly speaking, this is not a question of law and,
in view of the absence of a proper factual basis in the stated
case,
the question could not be answered in favour of the municipality. The
question accordingly fell away.
[28]
In view of the agreement of the parties, as recorded in paragraph 15
above, Nurcha is accordingly entitled to judgment in terms
of prayers
A, B and C of its particulars of claim. I should record that we have
been advised by counsel that all reserved issues
as to costs have
been settled, as reflected in the order below.
[29]
In the result the following order is made:
1
The appeal is upheld with costs, including the costs consequent upon
the employment of two counsel.
2
The order of the court below is set aside and substituted by the
following order:
‘
Judgment
is granted in favour of the plaintiff as follows:
(a)
The defendant is ordered to pay the plaintiff the sum of
R2 692 467.43, together with interest thereon at the rate
of 15,5 per cent per annum calculated from date of service of summons
to date of final payment.
(b)
The defendant is ordered to pay the plaintiff’s costs of suit,
including all reserved costs save for those occasioned
by the
postponement of the matter on 12 March 2012 which are to be paid by
the plaintiff, such costs, where applicable, to include
the costs of
two counsel.’r
________________________
P B FOURIE
ACTING JUDGE OF APPEAL
APPEARANCES:
For
Appellant:
R G L Stelzner SC
L C
Kelly
Instructed
by:
DMO
Attorneys, Bryanston
Honey
Attorneys, Bloemfontein
For
Respondent:
L J Joubert
Instructed
by:
Coetzee
& Van Der Bergh, Oudtshoorn
Rossouws,
Bloemfontein