Nucon Construction Thaba Nchu (Edms) v Scholtz NO (A2/2010) [2010] ZAFSHC 141 (8 November 2010)

78 Reportability

Contract Law

Brief Summary

Contract — Subcontractor's claim for payment — Appellant sought payment of R222 205,61 based on an engineer's certificate issued for additional work on a construction project — Respondent disputed the validity of the certificate, claiming no variation order was issued and questioning whether the certificate was interim or final — Court a quo dismissed the appellant's application, citing factual disputes — On appeal, it was found that the engineer acted as the respondent's agent and that the certificate constituted a valid claim for payment, leading to the conclusion that the court a quo erred in its dismissal of the application.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an appeal to a Full Bench of the Free State High Court, Bloemfontein, against a judgment of Molemela J in which an application for payment was dismissed with costs. Leave to appeal to the Full Bench had been granted by the court a quo.

The appellant was Nucon Construction Thaba Nchu (Edms), who had been the applicant in the court a quo. The respondent was Mr Andrew George Scholtz N.O., who had been the respondent in the application proceedings.

The dispute arose from a subcontractor relationship on a construction project at “Barkley Road Shopping Complex” (Kimberley), relating to external services works and, specifically, the appellant’s claim for payment based on an engineer’s certificate issued under the governing contract conditions. The central controversy was whether the engineer’s payment certificate constituted an enforceable basis for immediate payment, and whether purported factual disputes justified the dismissal of the application.

Material Facts

It was common cause that the appellant had been appointed as a subcontractor for external works on the Barkley Road Shopping Complex project, and that the contractual framework comprised the special conditions of contract read together with the General Conditions of Contract for Construction Works (2004) (First Edition). It was also common cause that the relevant payment certificate was issued in terms of clause 49 of the general conditions, and that the engineer acted as the employer’s (respondent’s) agent under the contract.

The appellant’s cause of action was founded on an engineer’s certificate dated 14 February 2008, certifying that an amount of R222 205,61 was due by the respondent to the appellant. The certificate related to additional work that had been instructed by the engineer. The judgment further records that, consistent with the certificate, the appellant issued a tax invoice on 14 February 2008 to the respondent for the certified amount and sought payment.

The court a quo had treated certain matters as material factual disputes. These included whether the certificate was an interim or final certificate; whether, in the absence of a variation order, the certificate had been issued in accordance with the agreement between the parties; and whether, on the special conditions (including clauses identified as S1(d) and S1(z)), the appellant was entitled to payment for additional work not provided for in the bill of quantities without written authorisation.

On appeal, the Full Bench emphasised that the documentation, including the bill of quantities referred to in the papers, indicated a written instruction for the additional work by the engineer, and the certificate itself reflected that it related to additional work. The respondent, while asserting that as far as his knowledge went no written variation order had been issued, did not deny that additional work was required and at least partially performed. The respondent’s stance was also noted to be unsupported by any affidavit from the engineer, despite the engineer being the respondent’s agent and the issuer of the certificate.

Legal Issues

The principal legal question was whether the appellant was entitled, in motion proceedings, to judgment for payment on the strength of the engineer’s payment certificate, or whether the application had properly been dismissed due to genuine, material disputes of fact.

More specifically, the court had to determine whether the certificate was binding on the respondent as a debt due (in the absence of recognised grounds for impeaching such certificates), and whether the respondent’s reliance on the absence of a variation order and on the special conditions raised a dispute going to the validity of the certificate under the contract, or merely a non-material contention insufficient to defeat the claim.

The dispute therefore primarily concerned the application of established legal principles regarding the effect of engineers’/architects’ certificates to the facts and contractual context presented, together with an evaluative determination of whether the alleged disputes were real and material for purposes of deciding motion proceedings.

Court’s Reasoning

The Full Bench approached the matter by applying the legal position, drawn from the authorities cited, that an employer is generally bound by the act of its agent (here, the engineer) in issuing a certificate. The court relied in particular on the exposition in Smith v Mouton 1977 (3) SA 9 (W) (as approved on appeal in Mouton v Smith 1977 (3) SA 1 (A)) that a certificate functions similarly to an acknowledgment of debt, and that (subject to limited exceptions) it creates an obligation to pay the amount certified.

The court highlighted that the recognised exceptions include circumstances such as fraud, collusion between the agent and contractor to the employer’s detriment, or where the agent exceeded the mandate or issued certificates not in accordance with the written contract (with reference to Rudland and Son v Gwelo Municipality 1933 S.R. 119). It also accepted that the principle extends, in general, to interim/progress certificates, which are to be treated as virtually equivalent to cash, drawing support from the quotation referencing Dawnays Ltd v F.G. Minter Ltd (1971) 2 All ER 1389 (C.A.). The Full Bench also referenced Shelfearie Property Holdings v Midrand Shopping Centre 1995 (3) SA 187 (A) in support of the binding effect of certificates.

Applying these principles, the court found that none of the recognised impeaching grounds was present on the papers. There was no suggestion of fraud, collusion, or that the engineer lacked authority to issue certificates in terms of clause 49. The remaining question, therefore, was whether the certificate was issued pursuant to the parties’ agreement.

On that question, the court considered the cumulative effect of the common-cause contractual framework, the fact that additional work was contemplated and required, and the existence of documentation (described in the judgment as a bill of quantities attached to the replying affidavit) which, on the court’s reading, constituted written notification/instruction for the additional work. The court held that the certificate itself referred to “additional work” and that the engineer’s stance, as reflected by the issuance of the interim certificate, aligned with that conclusion. The respondent’s assertion that no written variation order existed “so far as his knowledge extended” was treated as inconsistent with the engineer’s certified position, particularly given the absence of any confirmatory evidence from the engineer.

The Full Bench further reasoned that, because the certificate was an interim payment certificate, questions such as whether the additional work had been completed were not decisive for the immediate enforceability of the interim payment obligation. In this framing, the court treated the perceived disputes identified by the court a quo as not amounting to genuine, material factual disputes that could justify dismissal of the application.

The court accordingly concluded that the court a quo had erred in dismissing the application on the basis of supposed disputes of fact.

Outcome and Relief

The appeal was upheld with costs.

The order of the court a quo was set aside and replaced with an order granting relief to the appellant in terms of prayers 1, 2 and 3 of the Notice of Motion. On the judgment’s description of the relief sought in the application, this entailed an order for payment of R222 205,61, together with interest and the costs of the application.

Cases Cited

Smith v Mouton 1977 (3) SA 9 (W).

Mouton v Smith 1977 (3) SA 1 (A).

Shelfearie Property Holdings v Midrand Shopping Centre 1995 (3) SA 187 (A).

Rudland and Son v Gwelo Municipality 1933 S.R. 119.

Dawnays Ltd v F.G. Minter Ltd (1971) 2 All ER 1389 (C.A.).

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Full Bench held that the engineer’s interim payment certificate issued under the governing construction contract conditions was binding on the respondent in the absence of fraud, collusion, lack of authority, or a demonstrated departure from the contract that would invalidate the certificate. It held further that the court a quo incorrectly treated the respondent’s contentions (including the alleged absence of a variation order and the characterisation of the certificate) as constituting genuine, material disputes of fact sufficient to defeat the application. The appellant was therefore entitled to the relief claimed on the papers.

LEGAL PRINCIPLES

An engineer’s or architect’s certificate issued by an agent administering a construction contract generally binds the employer in the same manner as an acknowledgment of debt, subject to ordinary agency-law exceptions and contract-based validity requirements.

The recognised grounds on which an employer may avoid being bound include fraud, collusion, or the agent exceeding the scope of authority, including issuing a certificate not in accordance with the written contract.

An interim/progress payment certificate is, in principle, to be treated as virtually equivalent to cash and must ordinarily be honoured; payment is not to be withheld merely due to countervailing allegations, unless the contract provides otherwise.