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2024
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[2024] ZAGPJHC 448
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Group Five Construction Pty Ltd v Fikeni A.O. (43891/2019) [2024] ZAGPJHC 448 (7 May 2024)
IN
THE HIGH COURT OF SOUTH AFRICA,
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Case No:43891/2019
1. REPORTABLE:
YES
/ NO
2. OF INTEREST TO OTHER
JUDGES:
YES
/NO
3. REVISED: NO
7 May 2024
In
the matter between:
GROUP
FIVE CONSTRUCTION (PTY) LTD.
(In
business Rescue)
Applicant
And
DR
SOMADODA PATRICK MAYIBONGWE FIKENI A.O.
Respondents
JUDGMENT
NOKO
J
Introduction.
[1]
The applicant launched an application for leave to appeal the
judgment and order I granted on 2 February 2024 wherein
I dismissed
its claim for payment of the sum of R1 728 534.00. The said
claim was predicated on the certificate of final
completion issued by
the principal agent appointed by Independent Development Trust (
IDT
),
represented by the respondents.
Background.
[2]
The background of this case has been comprehensively mosaicked in the
judgment I penned and will not be regurgitated in
this judgment. In
brief, the applicant entered into a principal building agreement
(
PBA
) with IDT for the construction of the Nelspruit High
court building. Lombard Insurance Company Limited (
Lombard
)
issued a construction guarantee in favour of IDT for the due
fulfilment of the constructions work undertaken by the applicant.
IDT
appointed a principal agent to manage the construction work and to,
inter alia
, issue payment certificates.
[3]
The principal agent issued a final payment certificate (FC) for the
amount stipulated in paragraph 1 above and the applicant
demanded
payment. IDT refused to pay as the certificate identified defects
which must be remedied by the applicant prior effecting
the payment.
[4]
The applicant instituted legal proceedings to claim the said amount
which I dismissed. The applicant is aggrieved thereby
and now seeks
to appeal same hence launched this application for leave to appeal.
Submissions
and contentions.
Applicant’s
contentions and submissions.
[5]
The applicant’s counsel contended that I erred in not finding
that clauses 34.10 read with clause 41 of the PBA
specifically
enjoins IDT to pay amount certified in the final payment certificate
within twenty-one (21) calendar days from the
date of issue of the
certificate. Further that such payment should have been effected
irrespective of whether there were defects
in the construction work
done. Ordinarily, so the argument continued, the certificate
issued in terms of clause 26 of the
PBA is construed as a
prima
facie
evidence as to the sufficiency of the works and that the
works needed to be completed have been fulfilled.
[6]
The obligation to pay is effective even if there could be patent
defects to be remedied after final payment. IDT may still
hold the
applicant liable for the rectification of latent defects during the
period of 10 years following the date of final completion.
Now that
the applicant disputes that it is liable to remedy the defects
identified in the FC, IDT may have to launch a damages
claim against
its own principal agent.
[7]
Such a
certificate, so the argument continued, is akin to a signed
acknowledgement of debt and it ‘…
gives
rise to a new cause of action subject to the
terms
of the contract
.
’
[1]
(underlining added). It was therefore incorrect for me, so it is
argued, to introduce a term in the contract that IDT could withhold
payment despite the final certificate being issued. To this end, it
is argued, there are reasonable prospects of success.
[8]
The
importance of payment certificates in the construction space is
generally intended to maintain cash flow. As such it has been
construed as a liquid document and giving rise to a new cause of
action.
[2]
Without giving
effect to the final certificate the applicant would not have
mechanism to obtain payment and the guarantee
by the
Lombard
would not lapse. The lapsing of the guarantee is triggered by final
payment and as such the applicant would therefore also not
obtain a
refund of the remainder of the guarantee.
[9]
If the certificate is not given effect to as it is the norm or
general practice it means that the employers would readily
be allowed
not to fulfil their contractual obligations and this would have
negative implications for the whole construction industry.
It would
extend also to entities which provides guarantees in the construction
space.
Respondents’
contentions and submissions.
[10]
On the other hand, the respondents contended that the certificate
imposes obligations on both parties. Payment should
be effected
against the discharge of the reciprocal obligation by the applicant
to remedy the defect. The remedying of defects
would have been
undertaken and completed within a period of 21 days failing which the
applicant was not entitled to the payment.
Legal
principles and analysis.
[11]
Section 17 of the Superior Court Act provides that leave to appeal
would be granted where the court is,
inter alia
, of the
opinion that the appeal would have a reasonable prospect of success
and/or further that there is a compelling reason for
the appeal to be
heard.
[12]
It is now
trite
[3]
that the provisions of
section 17 introduced a higher threshold to be met in the application
for leave to appeal and the usage
of the word ‘
would
’
require the applicant to demonstrate that another court would come to
a different conclusion.
[13]
The mere
possibility of success, an arguable case or one that is not hopeless
is not enough.
[4]
There must be
a sound, rational basis to conclude that there is a reasonable
prospect of success on appeal
[5]
.
[14]
Ordinarily
possible defences which may be raised against demand for payment as
per final certificate include ‘…
the
employer will not be bound if there has been fraud or the architect
has acted in collusion with the contractor to the detriment
of the
employer’.
[6]
If the architect as an agent has exceeded his mandate; “
where
the engineer issued a certificate that were not drawn up in
accordance with the terms of the written contract between the
parties
but in terms of an oral variation made by the engineer, which he was
not authorised to make. The relevant certificate were
therefore held
to be invalid’.
[7]
In the Portuguese Plastering case certificates had been issued
prematurely before the time specified in the contract and were
declared invalid.
[8]
From
the aforegoing it follows that the assertion that the final
certificate is irrevocable and unequivocal acknowledgement is overly
optimistic.
[15]
It is trite that the effect of the final certificate of payment is
usually intended to be conclusive evidence of the
value of the works,
that the works are in accordance with the contract and the contractor
has performed all his obligations under
the contract. The certificate
issued in this instance categorically state that the construction
work is not in accordance with
the contract or is defective. The
certificate identified the work which is defective and require same
to be rectified. The assertion
that the work is not completed is not
disputed by the applicant who stated that same may be rectified after
the payment. That notwithstanding
the applicant still disputes that
such work need be completed by itself.
[16]
The arguments advanced by the applicant are not sustainable. First,
the applicant’s submission seems to suggest
that the ‘
form’
must be considered and not the ‘
substance’
. The
applicant’s contends that once a certificate is labelled final
then
cadit questio
and it does not matter what is being
certified. Second, the certificate states that there are defects
which were identified before
the final certificate. The contract
states in clause 27.1 of the PBA that ‘
Defects that appear
up to date of final completion shall be addressed in terms of 24.0
and 26.0,’
which process has not been complied with.
[17]
Third, payment as per final certificate would release
Lombard
from its obligations predicated on the guarantee as such payment
would compel IDT to return the guarantee. It would follow that
Lombard
would be exempted to guarantee the defects which were
identified before the final certificate was issued. This would leave
IDT
in a precarious position especially because the applicant dispute
that it is responsible to remedy the defects.
[18]
Fourth, the certificate provides that the applicant is required to
rectify some defects but the applicant denies its
obligation to
rectify the said defects. This is a challenge to the certificate and
the applicant cannot be allowed to be selective
(to approbate and
reprobate) regarding the binding effect of the certificate.
[19]
Fifth, the certificate does not indicate which amount outstanding to
the applicant is in respect of the outstanding defective
work
identified in the FC which implies that the applicant would be paid
as if the constructions work has been completed.
[20]
It is axiomatic that though the final certificate signify that
construction work is completed the certificate in this
lis
clearly certified that construction work is not completed. As such
the argument that this should be ignored cannot be countenanced
at
any level.
[21]
To this end the contention that my judgment is bringing about crisis
and calamity in the construction industry/space
is without legal
basis and gratuitous. There is no magic in the certificate issued in
this
lis
to which one would contend that the interpretation I
attached thereto is mind-boggling.
[22]
In the premises the applicant has failed to demonstrate that the
requirements set out in the Superior Court Act were
satisfied and the
application for leave to appeal is bound to be dismissed. Therefore,
I find that no other court would come to
a different conclusion.
Costs
[23]
The general principle is that the issue of costs is within the
discretion of the court. In addition, it is also a general
principle
that the costs should follow the results. There is no basis to uproot
the said principle and I therefore hold that the
application is bound
to be dismissed with costs.
Order
[24]
In the premises I grant the following order:
That
the application for leave to appeal is dismissed with costs
M
V Noko
Judge
of the High Court
This
judgement was handed down electronically by circulation to the
Parties / their legal representatives by email and by uploading
it to
the electronic file of this matter on CaseLines. The date of the
judgment is deemed to be
7 May 2024
at 16:00
.
Date
of hearing:
8 April 2024
Date
of judgment:
7 May 2024
Appearances
For
the Applicants: Adv
Willis SC.
Attorneys
for the Applicants:Stephen
g May Attorney.
For
the Respondents:
Adv N Riley
Attorneys
for the Respondents: Darryl Furman & Associates
[1]
Para
19 of the Applicant’s Heads of Argument at 7-15.
[2]
Para
25 of the Applicant’s Heads of Argument at 7-16.
[3]
Mont
Chevaux Trust v Tina Goosen & 18 Others
2014
JDR 2325.
MEC
for Health, Eastern Cape v Mkhitha
2016
ZASCA (25 November 2016),
Acting
National Director of Public Prosecutions and Others v Democratic
Alliance: In Re Democratic Alliance v Acting Director
of Public
Prosecutions and Others
2016 ZAGPPHC 489.
[4]
MEC
for Health, Eastern Cape v Mkhitha
2016
ZASCA (25 November 2016) at para 17.
[5]
S
v Smith
2012
(1) SACR 527.
[6]
Smith
v Mouton
1977(3)
9 (WLD), para A-B at p13.
[7]
ibid
at
para A – C. p13.
[8]
Ibid
at
para D p 13.