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[2012] ZAFSHC 129
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Axton Matrix Construction CC v Metsimaholo Local Municipality and Another (2778/2011) [2012] ZAFSHC 129 (28 June 2012)
FREE
STATE HIGH COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
Case
No.: 2778/2011
In
the matter between:
AXTON
MATRIX CONSTRUCTION CC
......................................
Applicant
and
METSIMAHOLO
LOCAL MUNICIPALITY
Respondent
MONDE
CONSULTING ENGINEERS &
Joining
Third-Party
PROJECT
MANAGERS CC and AQUA
CONSULTING
ENGINEERS & PROJECT
MANAGERS
…
..........................................................................
(acting
as a joint venture under the name of
MONDE
– AQUA CONSULTING ENGINEERS
AND
PROJECT MANAGERS)
HEARD
ON:
14 JUNE 2012
_______________________________________________________
JUDGMENT:
LEKALE, J
_______________________________________________________
DELIVERED
ON:
28 JUNE 2012
_______________________________________________________
INTRODUCTION
AND BACKGROUND
[1] This is an
application for an order directing the respondent to,
inter alia
,
pay the applicant as follows:
1.1 R463 837,13 on the
basis of a certificate of interim payment issued in favour of the
applicant by the engineer appointed by
the respondent to administer
the construction contract between the parties;
1.2 R459 978,06 in
respect of the balance, inclusive of VAT, of the monies retained by
the respondent with regard to the defect
liability period agreed upon
by the parties.
[2] The applicant is a
construction close corporation contracted by the respondent under
contract number 17/2008 to construct sewer
reticulation in its area
of local government authority.
[3]
The respondent is a local municipality established in terms of the
Local
Government:
Municipal
Structures Act No. 117 of 1998
.
[4] The third party is
the engineer appointed by the respondent to administer the contract
between it and the applicant in terms
of the provisions of applicable
general conditions of contract (GCC)
[5] On 20 December 2008
the respondent accepted the applicant’s tender for the
construction of sewer reticulation with the
contract price of R8 447
898,75 inclusive of VAT together with contingency amount of R250
000,00.
[6] The agreement between
the parties incorporated the provisions of the
General Conditions
of Contract for Construction Works
(2004) published by the South
African Institute of Civil Engineers, 1
st
Edition, Fourth
Print (GCC).
[7] The GCC provides,
inter alia
, for the appointment of an engineer, as the
respondent’s agent, as well as for certification by the
engineer, of interim
payment to the applicant, among others.
[8] On 26 July 2010 the
engineer issued certificate no. 11 in favour of the applicant for
payment of an amount of R463 837,13 and
the same was received by and
for the respondent on 27 July 2010.
[9] In terms of the GCC
the respondent was supposed to pay the certified amount to the
applicant within 28 days after receipt of
the certificate in
question. The respondent, however, did not oblige and the applicant,
eventually, invoked the provisions of clause
57.1 of the GCC and gave
the engineer notice of disagreement with regard to non-payment by the
respondent on 6 October 2010.
[10] On 12 October 2010
the engineer gave a ruling on the disagreement as contemplated by
clause 57.2 of the GCC.
[11] After a number of
interactions between the parties in an attempt to resolve the matter,
the applicant, on 11 April 2011, notified
the respondent of its
intention to cancel the contract and demanded payment of both the
outstanding amount as certified and the
balance of retention monies
inclusive of VAT as set out in paragraph [1] above.
[12] The applicant,
eventually, launched the present proceedings on 19 July 2011 and,
thereby, expressly cancelled the contract
between the parties. It,
eventually, secured an order it sought by default on 11 August 2011.
[13] On 14 March 2012 the
respondent filed opposing papers after the relevant order was
rescinded on 9 February 2012.
[14] The respondent,
further, simultaneously delivered a third party notice claiming a
contribution or indemnification against the
engineer on the grounds
that the latter unlawfully exceeded its mandate and contravened the
clear provisions of the tender by effectively
certifying that an
amount of R8 764 824,73 inclusive of VAT was due and payable to the
applicant.
[15] Respondent,
furthermore, counter applied for payment of R2 034 729,00 against the
applicant and the third party jointly and
severally for work not
performed alternatively for defective work and breach of contract.
[16] The engineer, as the
third party, filed an opposing affidavit on 28 May 2012 in terms of
which it,
inter alia
, raised a point
in limine
of
prematurity against the respondent’s claim on the basis that
the latter had failed to exhaust dispute resolution procedures
agreed
upon by the parties before it embarked on the current proceedings.
[17] The matter,
eventually, served before me on 14 June 2012. Mr. Cronje, for the
respondent,
inter alia
, submits that the respondent’s
counter application should be referred to trial in order for damages
to be proved.
[18] On behalf of the
third party, Ms Kock, contends that the time for the engineer to file
answering affidavits has not expired
and, as such, the third party
notice should be postponed to enable the engineer to deliver heads of
arguments.
[19] Mr. Pienaar, for the
applicant, maintains that the respondent’s counter application
should be dismissed and that the
main application be disposed of as
it can be adjudicated upon separately from and independent of the
third party proceedings.
ISSUES IN DISPUTE
[20] The parties are in
dispute over whether or not:
20.1 the interim
certificate of payment upon which the applicant relies for payment is
valid insofar as the respondent, effectively,
contends that there was
fraud involved and that the engineer exceeded its mandate;
20.2 the applicant was
entitled to the release of the balance of retention monies when the
present proceedings were launched regard
being had to the fact that,
in terms of GCC, such monies were to be released only 14 days after
the expiry of the defects liability
period;
20.3 the respondent’s
counter application should be referred to trial.
CONTENTIONS
BY THE PARTIES
[21] Mr. Pienaar submits
to,
inter alia
, the following effect with reference to case
law:
21.1 the engineer is the
respondent’s agent and the latter is, as such, bound by the
acts and omissions of the engineer as
if it signed an acknowledgement
of debt itself;
21.2 the respondent is
not entitled to dispute the validity of a final or interim
certificate issued by the engineer on the basis
that the latter was
negligent or exercised his discretion wrongly or that the respondent
considers the work performed to be defective;
21.3 in the absence of
fraud, among others, the respondent is bound to pay the sum
certified;
21.4 the certified amount
is payable as cash and that fact does not mean that the respondent is
left without a remedy, because it
may still have recourse against the
engineer where the latter has certified in respect of defective work,
among others;
21.5 the respondent is
not entitled to assail the relevant certificate of payment, because
it failed to avail itself of such an
opportunity after the engineer
issued a ruling on payability of the certificate on 12 October 2010
insofar as it did not invoke
the provisions of clause 58.1 of the
GCC;
21.6 the applicant is
entitled to payment of the balance of the retention money, because it
cancelled the contract as a result of
the respondent’s breach
of the contract as contemplated in clause 56.2.3 read with clause
54.4 of the GCC;
21.7 the respondent
agreed to variation of the contract price in terms of a letter dated
1 April 2009;
21.8 the respondent has
not made allegations of fraud or misrepresentation on the part of the
applicant and bases its case on alleged
lack of authority on the part
of the engineer’s representative who signed the relevant
certificate;
21.9 the allegation that
the said representative lacked capacity is without substance;
21.10 the respondent has
not proved its alleged damages insofar as no expert evidence was
tendered and its counter application should,
therefore, be dismissed.
[22] On behalf of the
respondent, Mr. Cronje, contends to the following effect, among
others:
22.1 the relevant
certificate is invalid insofar as it claims more than the contract
price to the extent of R317 015,98;
22.2 no variations of the
amounts were authorised;
22.3 the engineer
exceeded its mandate by certifying more than the contract allows;
22.4 only a final
certificate cannot be attacked. The present certificate is assailable
insofar as it is an interim or progress
certificate;
22.5 the relevant
certificate is wrong from inception insofar as it is based on a wrong
invoice issued by the applicant;
22.6 as at 19 July 2011
when the present proceedings were launched, the applicant could only
claim interim payment and not the retention
money;
22.7 the respondent is
entitled to claim set-off in respect of an overpayment made on the
previous certificate;
22.8 all documents were
served on the third party, as required by law;
22.9 the applicant
conceded the incorrectness of the relevant certificate when it
undertook to adjust the same in its electronic
mail of 18 November
2010. The certificate is, therefore, not a liquid document.
[23] Ms Kock, for the
third party, holds to,
inter alia
, the following effect:
23.1 the respondent has
failed to respond to the third party’s request for documents
made in terms of Rule 35(12) of the Uniform
Rules;
23.2 the respondent has,
further, failed to exhaust internal dispute resolution procedures
agreed upon by the parties.
LEGAL
POSITION
[24]
The engineer appointed in terms of the GCC is the employer’s
agent and his acts and omissions are binding on the employer,
in the
position of the respondent, as if they are the latter’s own
deeds; see generally
SMITH
v MOUTON
1977
(3) SA 9
(WLD).
[25] The employer, in the
position of the respondent, is not bound by the acts of the engineer
as its agent where fraud is involved.
(See
SMITH v MOUTON
,
supra
, at 13A.)
[26] A
certificate of payment issued by the engineer, final or interim, is
treated as a liquid document with the result that it
amounts to an
acknowledgement of debt signed by the employer in favour of the
contractor. It is the equivalent of cash. (See
JOOB
JOOB INVESTMENTS (PTY) LTD v STOCKS MAVUNDLA ZEK JOINT VENTURE
2009
(5) SA 1
(SCA) at par. [27].)
[27] A
certificate of payment is not open to attack because it was based on
erroneous reports of the agent of an employer or the
negligence of
the engineer and such negligence on the part of the engineer cannot
provide a basis for cancellation or withdrawal
of the certificate by
the employer. (See
OCEAN
DINERS (PTY) LTD v GOLDEN HILL CONSTRUCTION CC
[1993]
ZASCA 41
;
1993
(3) SA 331
(A) at 342C.)
[28]
Such a certificate constitutes a separate and selfsupporting cause of
action which can only be challenged on limited grounds. (See
MARTIN
HARRIS & SEUNS OVS (EDMS) BPK v QWA QWA REGERINGSDIENS; QWA QWA
REGERINGSDIENS v MARTIN HARRIS & SEUNS OVS (EDMS)
BPK
2000
(3) SA 339
(SCA).)
[29] A
litigant, who uses motion proceedings ignoring the possibility of a
real and genuine dispute of fact, which cannot be resolved
on papers,
arising, takes the risk of the application being dismissed when such
a dispute eventuates. (See
GOUNDER
v TOP SPEC INVESTMENTS (PTY) LTD
[2008]
ZASCA 52
;
2008
(5) SA 151
(SCA) at 154.)
[30]
The court has a discretion to dismiss an application in the face of a
factual dispute, or to refer the matter for trial or
to direct that
oral evidence be placed before it. (See
TAMARILLO
(PTY) LTD v B N AITKEN (PTY) LTD
1982
(1) SA 398
(A) at 430G – 431A.)
FINDINGS
[31] I am satisfied, from
available evidence that, as correctly averred for the applicant, an
approval for variation in respect
of additional expenditure was
granted by the respondent on 1 April 2009 subject to the condition
that expenditure shall not exceed
the project allocation of R22 276
000,00. The engineer can, therefore, not be said to have exceeded his
mandate.
[32] I am, further,
persuaded that the resident engineer who signed the relevant
certificate was,
ex facie
the electronic mail relied upon by
the respondent, not necessarily prohibited from issuing the same. In
this regard it should be
noted, as correctly submitted for the
applicant, that the mail in question states that:
“
...
therefore he will not sign any legal documents such [as] contractor
certificates unless instructed by ourselves...”
There is, therefore, no
basis for concluding that the said representative did not have the
engineer’s instruction to sign
the relevant certificate. The
aforegoing view is, further, fortified by the fact that a ruling on
the payability of the certificate
in question was issued in October
2010 by the engineer.
[33] As correctly
submitted by Mr. Pienaar, the undertaking by the applicant to adjust
the relevant certificate is of no legal effect
on the nature of the
certificate because the same was not substituted by the engineer who
was the only one competent to issue the
same.
[34] The certificate in
question, like a final certificate, is payable as cash and any
problems which the respondent has with the
engineer, as its agent,
have no effect on the binding nature of the certificate on the
respondent.
[35] In my judgment, the
applicant became entitled to the balance of the retention monies in
terms of clause 54.4 read with clause
56.2.3 of the GCC when it
cancelled the contract on 19 July 2011. The aforegoing prevails
because the cancellation of the contract
by the applicant was a
direct result of the respondent’s failure to pay the applicant
the amount due in terms of the relevant
certificate as contemplated
in clause 56.1.1.2 of GCC.
[36] Clause 54.4 of GCC
is to the effect that in circumstances where the contractor, in the
shoes of the applicant, cancels the
contract because of,
inter
alia
, the employer’s failure to pay in accordance with any
payment certificate,
“
the
Contractor shall be paid by the Employer... for all measured work
executed prior to the date of cancellation the amount (without
retention) payable in terms of the Contract...
”
[37] In opting to deliver
a counter application for payment of damages, the respondent ought
reasonably to have foreseen that a
factual dispute would arise and
should have taken appropriate steps to guard against the same by,
inter alia
, going the action way.
[38] I am not persuaded
that this is an appropriate case for the court to exercise its
discretion in favour of referring the matter
to trial, particularly
when regard is had to the fact that the applicant launched its
application in July 2011. Finality on the
matter is essential.
[39] I am, furthermore,
satisfied that the third party procedure has been hampered by the
respondent in,
inter alia
, failing to comply with the third
party’s request in terms of Rule 35(12) of the Uniform Rules.
[40] In line with the
respondent-friendly test applicable in motion proceedings, I am
satisfied that the respondent’s case,
as the applicant for
relief against the third party, has not been proved on a balance of
probabilities.
[41] The respondent’s
case, as set out in its opposing papers and counter-application, does
not entitle it to set-off insofar
as its claim has not been proved.
No proof of any overpayment to the applicant is apparent
ex facie
the applicant’s papers.
INTEREST
[42] In terms of clause
49.7.2 of GCC the respondent is obliged to pay interest on overdue
amounts at the prime overdraft rate certified
by applicant’s
bankers from the date on which such payment fell due. Interest on
retention monies is, therefore, only payable
from the date on which
the contract was cancelled.
ORDER
[43] In consequence an
order in terms of prayers 1 to 5 inclusive of the notice of motion is
granted in favour of the applicant
subject to the following with
regard to interest:
43.1 Interest on R463
837,13 shall be calculated from 24 August 2010,
43.2 Interest on R459
978,06 from 19 July 2011.
[44] The respondent’s
counter application is dismissed with costs inclusive of the third
party’s costs.
______________
L. J. LEKALE, J
On behalf of applicant:
Adv. C.D. Pienaar
Instructed by:
Lovius Block Attorneys
BLOEMFONTEIN
On behalf of respondent:
Adv. P.R. Cronjé
Instructed by:
Mphafi Khang Inc
BLOEMFONTEIN
On behalf of third party:
Ms V. Kock
Instructed by:
Matsepes Inc
BLOEMFONTEIN