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[1993] ZASCA 41
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Ocean Diners (Pty) Ltd v Golden Hill Construction CC (436/91) [1993] ZASCA 41; 1993 (3) SA 331 (AD); [1993] 2 All SA 260 (A) (26 March 1993)
CASE NO : 436/91
N v H
OCEAN DINERS (PTY)
LTD
Appellant
and
GOLDEN HILL CONSTRUCTION
CC
Respondent
SMALBERGER, JA :-
Case No : 436/91
N v H
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the matter
between:
OCEAN DINERS (PTY)
LTD
Appellant
and
GOLDEN HILL CONSTRUCTION
CC
Respondent
CORAM
: E M GROSSKOPF, SMALBERGER, NIENABER,
JJA,
et NICHOLAS, HOWIE, AJJA
HEARD
: 11 MARCH 1993
DELIVERED
: 26 MARCH
1993
JUDGMENT
SMALBERGER, JA :-
The respondent (as plaintiff) successfully sued the appellant (as
defendant) in the Cape of Good Hope Provincial Division for the
sum of R52
967-41 plus costs. The respondent's action was founded on an
2
architect's certificate which incorporated an acknowledgement of debt.
The present appeal is directed, with the necessary leave, against
the whole of
the judgment of the court a
quo
.
On 26 May 1988 the appellant
(as employer) and the respondent (as building contractor) entered into a written
agreement ("the contract")
for the construction of a restaurant complex at Beach
Road, Gordon's Bay. The contract was in the standard form approved and
recommended
by the Institute of South African Architects and other related
bodies. Provision was made in the contract for the appointment of
an architect
and a quantity surveyor to represent the appellant in all matters concerning the
works and their completion.
Clause 25.1 of the contract provides,
inter
alia
:
"The Contractor shall be entitled to receive from the
Architect, interim certificates at
3
intervals not greater than one calender month, a penultimate certificate and
a final
certificate , stating the amount due to
him and to payment of such amount by the Employer within the period set out
in the attached schedule."
Various interim
certificates, based on the progress of the works, were issued from time to time
by the architect. On 17 October 1988
the penultimate certificate was issued.
Upon completion of the works the architect, on 26 March 1989, issued a final
certificate
in terms of clause 25.5 ("the certificate"). The certificate
reflected the total value of work done (including the value of work
done by
nominated sub-contractors) as R519 115-83. From this was deducted the amount of
R453 097-63 previously certified, as well
as certain retention monies, leaving a
balance of R52 967-41. The certificate contained an acknowledgement of the
appellant's indebtedness
to the respondent in that amount, and included a
promise to pay
4
such amount within seven days.
In his heads of argument Mr
Duminy, for the appellant, sought to challenge the status of the certificate
despite admissions made both
in the plea and the agreed statement of facts
incorporated in the record, that it was a final certificate. However, at the
hearing
of the appeal he accepted that the certificate was a final one in terms
of the contract.
Clause 25.7 of the contract (omitting what
is
not relevant to the present appeal)
provides:-
"A final certificate issued in terms of
clauses 25.5 and 25.6 shall be
conclusive evidence as to the sufficiency of the said works and
materials, and of the value thereof."
The certificate was issued by the appellant's
agent (the architect) acting within the scope of his
authority. The issuing of a final certificate carries
with it certain legal consequences. Their nature
depends in the first instance on the proper
5
interpretation of the relevant provisions of the governing agreement. In
the present matter the effect of the certificate was to determine
the respective
rights and obligations of the parties in relation to matters covered by the
certificate. It constituted (in the absence
of a valid defence) conclusive
evidence of the value of the works and the amount due to the respondent. It
embodied a binding obligation
on the part of the appellant to pay that amount.
It gave rise to a new cause of action subject to the terms of the contract. The
appellant's failure to pay within the time stipulated entitled the respondent to
sue on the certificate (cf.
Mouton v Smith
1977(3) SA 1(A) at 5 C - E).
However, the certificate is not indefeasible. It is subject to the various
defences that may be raised
in an action based on a final certificate. For
examples of such defences see
Smith v Mouton
1977(3) SA 9(W) at 13 A - D.
Any defence
6
available to the employer, or on which the employer seeks to rely, ought
ordinarily to be pleaded (
Mouton v Smith
(supra) at 5 F -
G).
It is necessary to analyse the pleadings in order to determine
what defences were raised in respect of the respondent's action. The
validity of
such defences can then be considered. Mr Duminy did not contend that there were
issues at the trial which went beyond
those pleaded, but had been canvassed
sufficiently fully for them to be considered. He specifically disavowed any
reliance by him
on an unpleaded defence.
The only defences raised in the appellant's amended plea (which is dated
27 September 1990), the day after the conclusion of the evidence
at the trial,
and which incorporated all amendments sought and granted during the trial) were:
1) The architect's lack of authority
to issue the
7
certificate - a defence subsequently abandoned;
2) That the
certificate had been validly
cancelled by the architect (and was
therefore not
enforceable) as a consequence of:
(a)
Mr Acavalos,
representing the appellant, having disputed the correctness of certain amounts
reflected in the certificate, which contentions
were upheld by the architect,
alternatively,
(b)
Errors
made in the valuation of the works by the quantity surveyor which were induced
by the respondent negligently, alternatively,
innocently duplicating its claims
in respect of two items;
3) A special plea
that the respondent's claim
arose from a dispute between the parties
relating to the
contract which should have been referred to
arbitration
in terms of clause 26 of the contract - a defence
which
8
has also been abandoned;
4) Although not specifically
pleaded, the appellant's right to argue that the provisions of clause 25.7 of
the contract are contrary
to public policy, alternatively, that because the
certificate did not accurately reflect the amount due by the appellant it would
be against public policy to enforce it, was not challenged. I therefore propose
to treat it as if it were a pleaded defence.
It is common cause that after the certificate was issued Mr Acavalos
questioned the correctness of certain amounts included in the
final valuation.
His dissatisfaction appears to have been directed at the architect rather than
the respondent. Be that as it may,
no formal dispute was ever declared with the
respondent in respect of such amounts, nor was any dispute referred by the
appellant
to the architect for his decision in terms of clause 26 of the
contract.
9
(I assume that the provisions of that clause would have permitted him to
entertain such a dispute.) Instead the architect, without
any prior referral to
the respondent, purported to cancel unilaterally the certificate and on 21 April
1989 issued what was described
as an interim certificate reflecting an
indebtedness of R35 895-43.
It is further common cause that: 1) The (final) certificate erroneously
included certain amounts which were either not due, or constituted
overpayments,
and which, if properly accounted for, would have reduced the appellant's overall
liability to the respondent by slightly
more than 1% of the total valuation of
the works. I shall refer to these as "the accounting errors". (Also included
were certain
amounts paid directly by the appellant to certain nominated
sub-contractors. These were, however, correctly included in terms of
the
10
contract as it was the respondent's responsibility to pay nominated
sub-contractors. The appellant therefore has no valid complaint
against their
inclusion.) 2) The respondent negligently duplicated two items in its accounts
submitted to the quantity surveyor.
The amounts involved were R2 025-00 for one
item (ceiling insulation material) and either R2 196-00 or R933-70 for the other
(fill
material), depending upon the correct basis for its calculation. I shall
refer to these as "the duplications".
I proceed to consider the two remaining defences raised in the plea. The
first of these is based on the purported cancellation of
the certificate by the
architect. There is in my view no substance in this defence. If the effect of a
contract is to confer finality
upon a certificate (which clause 25.7, assuming
its validity, does), a certificate validly issued (such as the one we are
dealing
with) cannot, in
11
the absence of a contractual provision to the contrary, or agreement or
waiver by the parties (neither of which is suggested), be
withdrawn or cancelled
by an architect in order to correct mistakes of fact or value in it (Hudson's
Building & Engineering Contracts
, 10th Ed, 484). The contract does
not provide to the contrary; clause 26, if anything, confirms that there was to
be finality as
far as the architect was concerned. The only person empowered by
clause 26 "to open up, review or reverse any certificate" is an
arbitrator if a
dispute concerning a certificate is submitted to arbitration (which was not the
case here). Once therefore the architect
had issued the certificate he was
functus officio
in so far as the certificate and matters pertaining
thereto were concerned (Halsbury's
Laws of England
, 4th Ed, Vol 4(2) ,
para 432). That being so, he was not entitled unilaterally to withdraw or cancel
it.
12
The matter may also be viewed from a
different
perspective. A final certificate is not open to
attack
because it was based on erroneous reports of the
agent
of an employer or the negligence of his
architect
(Hudson op
cit
at 483;
Hoffman v Meyer
1956(2) SA
752(C) at 757 F - G). The failure of the
quantity
surveyor properly to scrutinize the claims put
forward
and to rectify any errors, and the possible
negligence
of the architect in failing to satisfy himself as to
the
correctness of the claims and valuations before
issuing
the certificate, would accordingly not have provided
a
defence to an action on the certificate. A
fortiori
it
cannot provide a basis for cancellation or withdrawal
of
the certificate by the architect.
The remaining defence pleaded relates to the validity and enforceability
of clause 25.7. Mr Duminy argued that if the words "conclusive
evidence" in
clause 25.7 meant (as they obviously do) "finally
13
decisive of the matter in issue" (i e the value of the works), the
provision was contrary to public policy as it ousted the courts'
jurisdiction to
enquire into the accuracy and validity of the matter. This argument was founded
on passages in the judgments of this
Court in
Sasfin (Pty) Ltd v Beukes
1989(1) SA 1 (A) at 14 I - 15 B and 23 C - D. The remarks there made must be
seen in their proper context. What rendered the particular
provision under
consideration in the passages referred to contrary to public policy was the
authorship of the certificate sought
to be relied upon against the debtor ("any
of the directors of any of the creditors"), coupled with the conclusive nature
thereof,
seen in the context of the peculiar terms of the contract with which
this Court was there dealing.
The present matter is a very different one. We are not dealing with the
situation where a party leaves the extent of his liability
to be determined,
not
15
person they are entitled to expect will act fairly and impartially (cf.
Universiteit van Stellenbosch v J A Louw (Edms) Bpk
1983(4) SA 321 (A) at
337 E - F). Its provisions can therefore not be said to be inimical to the
public interest. The clause itself
is one commonly found in building contracts -
it is in fact a standard clause in a widely approved and used document - which
has
been applied for many years, apparently without objection, as the absence of
reported cases on the point suggests. It would be absurd
to now hold it contrary
to public policy.
When we know, as we do, that the certificate is not entirely accurate in
relation to either the valuation reflected therein or the
amount due to the
respondent, would it be contrary to public policy to enforce it? In my view not.
Public policy is largely concerned
with the potential for manifest unfairness or
injustice within a given situation. The appellant had
16
a quantity surveyor and an architect acting on its behalf, on whose
professional expertise it could rely and whose duty it was to
protect its (the
appellant's) interests. To the extent that the appellant has suffered damage
through a negligent failure on their
part to act in its best interests, it would
(subject to prescription) have an action for damages against them. The situation
is therefore
not one inherently fraught with unfairness or injustice as far as
the appellant is concerned. Furthermore if, as I have pointed out,
errors or
negligence on the part of the quantity surveyor or architect do not render a
final certificate open to attack, a
fortiori
they cannot preclude its
enforcement as being contrary to public policy.
It follows that the defences raised in the appellant's plea cannot
succeed. That would normally signal the end of the appeal. Mr Duminy,
however,
addressed certain arguments to us on matters not covered
17
by the pleadings notwithstanding his specific disavowal that he sought to
rely on an unpleaded defence. I do not propose to entertain
those arguments save
for two which, although not raised as substantive defences on the pleadings, are
none the less premised on certain
factual allegations contained in the plea and
dealt with in evidence.
The gist of the first of these arguments, as I understand it, is as
follows: The certificate, as provided for in clause 25.7, is only
conclusive as
to the sufficiency of the works and the materials, and the value thereof. The
value is represented in the certificate
by the figure R519 115-83. That figure,
it is conceded, is conclusive and not open to dispute, even though it includes
what I have
referred to as the duplications (cf.
East Ham Borough Council v
Bernard Sunley & Sons Ltd
[1965] 3 ALL ER 619
(HL) at 632 H) . The
certificate, however, is not conclusive as to the
18
figure of R453 097-63 previously certified. That
amount
includes the accounting errors, and is thus incorrect. The final figure of R52
967-41 must accordingly also be wrong and the
certificate is not conclusive in
that regard either. The certificate therefore cannot be sued
upon.
The argument is fundamentally unsound. It proceeds on the
premise that the figure of R453 097-63 is not a valuation figure. That is
incorrect. A perusal of the earlier certificates issued reveals (1) that the
figure of R453 097-63 appears as the valuation figure
in the penultimate
certificate and (2) that it represents the progressive valuation figure up to
that time - only to be superseded
in turn by the final figure of R519 115-83 in
the (final) certificate. Both figures are therefore valuation figures. The fact
that
the amount of R453 097-63 includes the accounting errors makes it no less a
valuation figure. All the
19
accounting errors (and for that matter the duplications) present in the
valuation of R453 097-63 will have been carried forward to
the amount of R519
115-83. The difference between these two valuation figures (less retention)
represents the amount owed in terms
of the contract (R52 967-41). The
certificate is conclusive of that amount. To hold otherwise would be to render a
final certificate
vulnerable to the slightest error made earlier, something
which could never have been intended and which flies in the face of the
principles enunciated above.
The second argument was that the respondent's negligent
misrepresentations in respect of the duplications induced an incorrect valuation
of R519 115-83 and provides a valid defence to an action based on the
certificate. As previously mentioned, a final certificate is
not sacrosanct,
although, assuming a valid and enforceable underlying contract, it is
open
20
to challenge only on very limited grounds such as fraud and the like. Mr
Duminy sought to rely on a passage in
Thomas Construction (Pty) Ltd (In
Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd
1988(2) SA 546 (A)
at 562 H - 563 C in support of his argument. That case does not assist him.
Apart from the fact that it dealt
with an interim and not a final certificate
(which makes it distinguishable), it provides no direct or indirect support for
the proposition
put forward by Mr Duminy. The Court specifically refrained from
embarking upon a general consideration of defences available to an
employer when
sued on an interim (not to mention a final) certificate (at 562 I). We were not
referred to any other authority, nor
am I aware of any, that recognizes the
defence raised. None of the leading writers on building and other contracts
whose works I
have consulted mentions negligent or innocent misrepresentation
(relating to the certificate as such)
21
as a defence to a claim on a final certificate. In
Capstick & Co
Ltd v Keen
1933 NPD 556
at 567 inaccuracy in a final certificate induced by
the fraudulent representations of a contractor to an architect was recognized
as
a defence to an action founded on the certificate. However, no mention was made
of negligent or innocent misrepresentations. One
is left with the clear
impression that they are not available as defences. The reason could be that
they are not appropriate defences
having regard to the functions of an architect
and the scrutinizing mechanisms available to him before issuing a final
certificate,
as well as the need for finality.
It is, however, not necessary to decide the point as the evidence in any
event does not establish that the valuation of R519 115-83
was materially
influenced by the respondent's negligent misrepresentations. Rather it was the
product of a
22
compromise reached in the following circumstances. In December 1988 the
quantity surveyor submitted to the respondent a draft final
account for R487
884-47 for its approval. The respondent did not accept its accuracy, and
prepared a list of items which it contended
should be added to the account. The
inclusion of such items would have increased the total valuation to R530 465-65.
In due course
the quantity surveyor submitted a further draft final account for
R515 249-06 - an appreciable increase over its previous total but
substantially
less than the respondent's calculations. This still did not meet with the
respondent's approval. There followed certain
enquiries and negotiations which
culminated in a telephone conversation in which agreement was reached on a
compromise figure of
R519 115-83, that amount having been put forward by the
quantity surveyor and accepted by the respondent.
23
The figure finally agreed upon was the product of an investigation and
assessment by the quantity surveyor, and was accepted by the
architect. Both had
independent means of satisfying themselves that the valuation was accurate and
fair. They were not solely or
even largely dependent upon information furnished
by the respondent. In reaching a compromise attention was given to an overall
settlement
rather than a consideration of individual items. The architect, in
issuing his certificate, relied upon the compromise figure. A
compromise was in
the interests of both parties as it avoided the need to refer disputes either to
the architect or to arbitration.
Mr Clark, the respondent's contracts manager,
testified that he would not have compromised at a lesser figure even if he had
been
aware of the duplications at the time. There was no evidence to suggest
that the quantity surveyor would have refused to compromise
at the agreed
figure, or that
24
the architect would have issued a final certificate for a lesser
valuation, had they been aware of the duplications. In the result
the appellant
failed to establish a causal
nexus
between the respondent's negligent
misrepresentations and the valuation reflected in the certificate.
For the aforegoing reasons the appeal is dismissed with costs.
J W SMALBERGER JUDGE OF APPEAL
E M GROSSKOPF, JA )
NIENABER, JA )
CONCUR
NICHOLAS, AJA )
HOWIE, AJA )