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IN THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG

REPUBLIC OF SOUTH AFRICA

CASES NOs.: 7802/09 & 7803/09

In the matter between:

G LIVIERO & SON BUILDING (PTY) LTD PLAINTIFF

and

IFA FAIR-ZIM HOTEL & RESORT (PTY) LTD DEFENDANT

AND

In the matter between:

CASE NO. 7434/09

IFA FAIR-ZIM HOTEL & RESORT (PTY) LTD APPLICANT

and

G LIVIERO & SON BUILDING (PTY) LTD FIRST RESPONDENT

LOMBARD INSURANCE COMPANY LIMITED SECOND RESPONDENT

JUDGMENT

Date delivered: 27 August 2010

SISHI J

Introduction

[1] Case Nos.7802/09 and 7803/09 are the two matters wherein the plaintiff sues the defendant for provisional sentence on two interim payment certificates issued in term of a building contract by the principal agent for approximately R17.5 million. The plaintiff contends that the two interim payment certificates were issued in terms of a building contract by the principal agent.

[2] The defendant contends that the plaintiff in these proceedings sought first to obtain payment in circumstances where it had no right to do so because it knew that the two certificate upon which it relied for payment had been issued otherwise than in accordance with the provisions of the principal building contract and as such are invalid. In addition, the imposition of penalties, dealt with more fully later, demonstrate that those exceed R45 million and the plaintiff knows that if imposed, these penalties will result into substantial balance owing to the defendant by the plaintiff.

[3] Case No.7934/09 is an application to interdict the first respondent from claiming payment in terms of the two guarantees. In this application, the applicant, the employer in terms of a building contract for the construction of Fairmont Zimbali Hotel and Resort Complex (“the project”) at Zimbali Coastal Resort in Ballito seeks to interdict the first respondent, the main contractor on the project, from claiming payment in terms of two guarantees issues by the second respondent.

Background

[4] The applicant is an employer in terms of a building contract for the construction of the project. The project value is some R600 million, at the time the provisional sentence summons were issued and the application launched, it was nearing completion. The building works which are the responsibility of the first respondent in the application, are valued at R351 million of which it has already paid R301 million. The first respondent in the application is the main contractor on the project and in June 2009, the second respondent issued two payment guarantees to the first respondent in respect of the works.

[5] The project with which the application is concerned comprises the construction of a hotel and a resort complex including condominiums and facial ownership units at the exclusive Zimbali Coastal Forest Estate. The project has two components, one related to the Hotel complex and the other to the Garden Suites. Each of the components is governed by a separate contract. The relevant and material terms of each building contract will be referred to as is necessary in this judgment.

[6] At the same the plaintiff instituted these proceedings, it gave notice to the defendant that it proposed to claim the very same amounts reflected in the certificates from Lombard Insurance Company which had issued a payment guarantee. Before that notice expired, and on the same day on which the provisional sentence proceedings were instituted, on 14 September 2009, the defendant launched proceedings to interdict the plaintiff from presenting the certificates to Lombard Insurance Company for payment. The application came before Court on 15 September 2009. On that day, an order was taken by consent which had the practical effect of consolidating the two provisional sentence actions with the interdict proceedings. In that court order, it is provided that all three matters be heard on the opposed roll of 4 November 2009. The court order also made provision for the filing of affidavits in all the matters. The costs of the day were reserved. At the same time, the plaintiff gave the defendant an undertaking not to present the guarantees pending the determination of the provisional sentence proceedings.

[7] There are two intermediary applications in these proceedings, namely:

- The first is the application for leave to file further affidavits in these matters. The applicants in this intermediary application are IFA Fair-Aim Hotel and Resort (Pty) Ltd;

- The second is the application to strike out certain allegations contained in this affidavit of Wessel Pretorius Witthuhn. This application to strike out has been brought by the Plaintiff in the provisional sentence proceedings. It is appropriate to first deal with these intermediary applications as their outcome is relevant to the determination of both provisional sentence proceedings and the interdict applications.

Application for the filing of further affidavits

[8] On 4 November 2009, the day of the hearing of these matters, the applicant/defendant IFA Fair-Zim Hotel and Resort (Pty) Ltd brought an application for leave to file further affidavits on these matters. In respect of the application proceedings, they sought that the Court admits the affidavits of Mr Vessel Pretorius Witthuhn, Howard Jones and Erick Arthur Vaughan.

[9] Mr Harcourt for the plaintiff in the provisional sentence matters and the respondent in the other matter, informed the Court that there is one affidavit which is sought to be introduced in the provisional sentence proceedings by Mr Howard Jones who is the principal agent. That affidavit is short, and the plaintiff does not object to the affidavit being introduced. The respondent’s position in case No.7802/09, the application to file further affidavit is that the affidavit of Mr Jones is admitted by consent.

[10] Mr Harcourt for the respondent in the application is opposing the application to file further affidavits. He submitted that the respondent contends that there has been more than adequate opportunity to file these affidavits. The applicant has known since 12 October 2009 of the attitude of the respondent to further affidavits and submitted that this application should not be entertained. He submitted that the main objection to the opposition is that these affidavits do not even relate to the issues before Court as set out in the heads of argument.

[11] Mr Broster for the applicant referred to the affidavit of Howard Jones who says he is the managing director of Mirage Leisure and Development (Pty) Ltd, and describes himself as the Principal Agent in the building contract. In paragraph 2 of his affidavit, he says that Mirage is in the process of preparing a final account in connection with the project.

[12] It is common cause that both sides claim cancellation of the building contract. The applicants represented by Mr Broster who are defendants in the provisional sentence proceedings, says that there was repudiation on 25 August 2009. The builder says that he cancelled on notice at a slightly later date. But, the one thing that the Court can accept with absolute certainty is that this building contract has been cancelled. The only issue is how it was cancelled. When a building contract is cancelled, the Quantity Surveyor or the Principal Agent has to prepare a final account. That is what Mr Jones says he is doing in paragraph 2 of his affidavit at page 18 of the papers. In paragraph 3 of his affidavit, Mr Jones says that Mirage has been approached by both the plaintiff and the defendant and asked to depose to affidavits. In other words, both sides have tried to get him to join in these proceedings. His response in paragraph 4 of his affidavit is as follows:

“Mirage has declined to do so because it believes that it is inappropriate to express any view on the final account until such time as the final account which is in the cause of being prepared is completed”.

He then says in paragraph 5:

“I believe that this can be done within approximately the next 6 weeks”.

Mr Broster submitted that Mr Jones told the Court that, as an independent observer, he then goes on to say at paragraph 6:

“I depose to this affidavit simply to inform the Court of what I believe is the proper approach for Mirage to adopt in the circumstances”.

Mr Broster submitted that what is before Court at this moment is that the person who is doing the measuring, the costing and final account, said he needed 6 weeks to determine this contract with certainty. Mr Broster further submitted that he said that in the context that the contract has been cancelled, the builder is not going back on site, the owner is going to find somebody else to finish the job. Everybody in this unfortunate mess was unhappy. He submitted that it would be far much easier for the Court to determine these three applications, if before Court there is a final account that tells the Court how the money remained available should be divided up.

[13] Mr Broster submitted that the reason why this affidavit is late is set out in the affidavit of Patrick Roy Falconer at paragraph 11 page 14 of the papers where he says:

“When the application papers were prepared, both Romano Valenti and the individual representing the principal agent, Mirage Leisure and Development (Pty) Ltd (“Mirage”), Micheal O’Grady, were urged to take steps to complete the final account because it was anticipated that litigation would follow, the claims of cancellation of the contract by both parties. Both the principal agent and the quantity surveyor represented by Messrs O’Grady and Valenti were asked to work towards the goal of achieving the final account. Their efforts are ongoing as apparent from the affidavit of Howard Jones, a director of Mirage. As is further apparent therefrom, Mirage is not prepared to express a view as the final account is still in the process of preparation”.

He goes on to say:

“No calculations concerning the final account would be possible before it is finalised and could thus not have been included in the affidavits filed by the defendant in the provisional sentence proceedings on 30 September 2009 …”.

[14] There is therefore a reason why these calculations were not before Court in any of the earlier affidavits. There is uncontested evidence before the Court that it is going to take six (6) weeks to finish the calculations. This comes from an independent project manager in the project, and the figures in the final account will tell the Court what is due to the contractor and what is due to the owner. The general rule is that in provisional sentence proceedings, one is only permitted to file further affidavits in exceptional circumstances. It is trite law that the Court has discretion to allow supplementary or additional affidavits in exceptional circumstances. Mr Broster submitted that it was impossible to get a final account out of Mr Jones before this hearing. He stated in his affidavit that he needed another six (6) weeks.

[15] Referring to the CPD decision of Maya AJ in the case of First National Bank Ltd v AVTJOGLOU 2000(1) SA 989 CPD at 993 C-D. Mr Broster submitted correctly that consideration of justice and fairness must be of prime importance when the Court is concerned with the interpretation of procedural rules. This is so because it is vital important that parties should be given adequate opportunity of putting their cases before court. He submitted, correctly in my view that, the old strict rule of limiting affidavits in provisional sentence has given way to a more relaxed and flexible approach in the interest of justice, rather than shutting people out when there is a perfectly good explanation why the affidavit is out of time or forward at a late stage.

[16] Mr Broster then referred to the affidavit by Mr Falconer who is the applicant attorney’s in this matter. He set out how it became necessary for the applicant to seek to file further affidavits in the application papers. He referred to paragraph 13 on page 14 of the application where Mr Falconer says the following:

“In the application for an interdict, Liviero filed an affidavit which did not deal with the factual matter raised by Mr Witthuhn in the founding affidavit. Liviero in paragraph 8 at page 278 of the application papers said that the application itself had become irrelevant in the light of the provisional sentence actions.”

Mr Broster submitted that this not common cause, they seek final relief in the application proceedings if these matters proceed today. If they are not to proceed today then the application can be linked to the provisional sentence adjourned to an appropriate date provided of course that the undertaking regarding the presentation of the guarantee remains in place. What Mr Liviero did in the application proceedings was that, he filed the short affidavit at page 276 to 278 of the application papers. He said the application has become irrelevant in the light of the provisional sentence proceedings. Mr Broster submitted that what he did not say in the short affidavit at page 227 of the papers is that he intended to deal with what is said in the founding affidavit of Witthuhn, in the provisional sentence proceedings. What he intends to do in those provisional sentence proceedings is that he launched an attack on Mr Witthuhn personally in those proceedings. The affidavit that Mr Witthuhn seeks to file today is a reply to that attack.

[17] The fact of the matter is that if Mr Liviero had dealt with the allegations in the application, instead of filing the affidavit which he did, Mr Witthuhn would have in the ordinary course of the rules of court have had an opportunity to reply, but he did not do so. Instead, he filed his affidavit in the provisional sentence proceedings at a later date and there he launched an attack on Mr Witthuhn’s bona fides. The attack is identified at paragraph 15 page 15 of Mr Falconer’s affidavit where he says:

“It was only on 12 October 2009 when Liviero filed his replying affidavit in the provisional sentence proceedings, that he saw fit to attack the deponent Witthuhn and to accuse him of bad faith …”

[18] It was finally submitted that these affidavits should be admitted and that good reasons had been advanced for their late filing.

[19] Mr Harcourt’s response was that he invited that Court to consider what was said in the further affidavits because the approach that had been taken by the plaintiff is that those affidavits should not be admitted because they were irrelevant and they did not assist the defendant in discharging the onus.

[20] Mr Harcourt also referred to the affidavit of Liviero which was deposed to on 30 October 2009, dealing with the issue of further affidavits. Amongst the issues dealt with in this affidavit, is the prejudice to be suffered by the plaintiff if these further affidavits are admitted and it is alleged that the applicant had ample opportunity to file these affidavits.

[21] After considering the contents of the affidavits, and the arguments advanced on behalf of both parties, I ruled that the further affidavits should be admitted. The applicant advanced good reasons why these affidavits should be filed at this stage and provided a satisfactory explanation for the lateness.

Application to strike out

[22] The plaintiff made an application to strike out the following allegations contained in the affidavit deposed by Wessel Pretorius Witthuhn on behalf of the defendant.

“(1) The following words in paragraph 8:

“It is the defendants case that when the final certificates have been prepared, there will reflect an amount of R14 862 962,90 as due to the defendant after the imposition of the penalties already calculated by the quantity surveyor as being due by the plaintiff in terms of the contract because of delay.”

2. The following allegations in paragraph 12:

“I wish to emphasise that the penalties have been calculated by the Quantity Surveyors in accordance with the provisions of the contract as at 25 August 2009. If the date of calculation proves to be later, then the penalties will simply increase”.

2. The following portion in paragraph 15:

“The fact that the Quantity Surveyors have imposed the penalties in accordance with the contract demonstrates that I have a defence which is likely to succeed because in acting as they do, the quantity surveyors are performing an independent function in terms of the contract.”

2. Each application to strike out is on the grounds that the allegations are hearsay and have not been confirmed in an affidavit deposed to by the quantity surveyors”.

[23] In dealing with an application to strike out on 4 November 2009, Mr Broster submitted that the gist of the application to strike out is that reference is made to the calculations by the quantity surveyor referred to in annexures “BB” and “CC” in the application papers and that this is hearsay on affidavit because the quantity surveyor should put up an affidavit to confirm the contents thereof and that he has not done so.

[24] He then refers to the affidavit of Mr Jones wherein he said:

“We, as principal agent, have been approached by both sides and we have declined to put an affidavit”.

Mr Broster submitted that what is before court is a calculation by the quantity surveyor, where in he says, when all this comes to an end, these are the calculations, they are annexures “BB” and “CC” of the application papers from page 227 to 252 of the papers. He submitted that it is not suggested that these are not the calculations of the quantity surveyor. The technical point is taken that, he did not depose to an affidavit and that is why they fall to the struck out because they are hearsay. He submitted that Mr Witthuhn dealt with these in his affidavit. He said that that the applicant put these schedules up, believing them to be the work of an independent quantity surveyor and not anticipated that the point would be taken that they are hearsay in the mouth of Mr Witthuhn. He submitted that this is a very technical objection. He further submitted that both the quantity surveyor and more importantly the principal agent do not want to become involved in the dispute, hence they are reluctance to file affidavits. What is before Court are detailed schedules prepared by the quantity surveyor but the objection is that they are hearsay.

[25] In the supplementary heads of argument, Counsel for the applicant submitted that at the hearing of 4 November 2009, the Court granted the applicant leave to file further affidavits of the deponents listed in the formal application for leave to file further affidavits.

[26] Is submitted that Patrick Roy Falconer, in paragraphs 7, 8 and 9 of his affidavit, dealt with the circumstances in which the confirmatory affidavits could not be obtained from Romano Valenti, or the principal agents represented by Howard Jones. Both believed that deposing to an affidavit in these proceedings would compromise their independence and this is expressly stated by Jones in paragraphs 3 and 4 of his affidavit. Jones also records that both parties to the proceedings approached him to depose to an affidavit and he refused to do so.

[27] On the admissible evidence now before Court, the Court, in terms of section 3 of the Law of Evidence Act 45 of 1988 (“the Act”) may, if it is in the opinion that it is in the interest of justice to admit hearsay evidence after having regard to the cumulate effect of the factors set out in section 3(1)(c) of the Act.

[28] See S v Shaik and other 2007(1) SA 240 SCA at 298.

Mr Broster dealt with the requirements in terms of section 3(1)(c) of the Law of Evidence Act as follows in the supplementary heads of argument:

The nature of the proceedings

[29] It is said that in motion proceedings the prejudice that the party against whom it is sought to adduce the hearsay evidence would suffer maybe balanced by allowing a further set of affidavits or by resorting to oral evidence. The contractor has not sought to avail itself of either of these causes of action.

See Makhathini v Road Accident Fund 2002 (1) SA 511 (SCA) at 522, paragraph 29.

The nature of the evidence sought to be introduced

[30] If one has regard to the fact that the reliability of the evidence is in issue under this heading, then it must be born in mind that the principal agent and the Quantity Surveyor are independent men seeking to maintain a fair and even handed approach between the parties. What was said on behalf of Valenti in the offending paragraphs has not been disputed at a factual level. The objection is therefore purely technical and the factual matter remains uncontradicted.

See Makhathini case supra, page 522 at paragraph 30.

Purpose for which the evidence is tendered

[31] The evidence is tendered to show that when penalties are properly taken into account little or no payment will be due to the contractor. The evidence is therefore central both to the application and the provisional sentence proceedings and serves to undermine the amounts reflected in the certificate which are said to be liquidated amounts. It is clear that where the evidence bears on the central issue in the case the court ought to be slow to admit such evidence.

See Makhathini case supra at page 523 E.

Probative value of the evidence

[32] Because of the independent nature of both the quantity surveyor and the principal agent and because of their direct impartial involvement in the execution of the contract it can safely be concluded that the hearsay sought to be admitted has both relevance and probative value.

The reason why the evidence was not given by the person upon whose credibility the probative value of the evidence depended

[33] The unchallenged explanation on the affidavits before court is that the principal agent and the quantity surveyor wished to maintain the position of impartiality. This, it is submitted, is a good reason for refusing to give the evidence sought. If, however, the contractor wished to challenge this evidence, it is open for it to do so by a reference to oral evidence. The contractor has not sought to do this.

Any prejudice which the admission of the evidence could entail

[34] Because it is open to the contractor to seek either to file further affidavits or to ask that the matter be referred for the hearing of oral evidence, it is submitted that the prejudice which the contractor would suffer is absolutely minimal. This is particularly so when the notice to strike out is simply technical and does not point to any evidence which the contractor would lead to contradict what is said on behalf of the quantity surveyor.

[35] He finally submitted that having regard to the cumulative effect matters mentioned and in particular the technical nature of the objection, the probative value of the evidence sought to be introduced and small risk of prejudice to the contractor if the evidence is admitted, the applicant submits that the application to strike out ought to be dismissed with costs, including the costs consequent upon the employment of two counsel.

[36] The plaintiff responded to the defendant’s supplementary heads of argument which were filed after the matter was argued on 2 December 2009.

[37] The Plaintiff in the heads of arguments made the following submissions:

In its reliance to annexure “S” as its defence, the defendant seeks to draw inference from the document as to Mr Jones’ state of mind when he signed the interim payment certificates. It is submitted that, that did not discharge the onus resting on the Defendant for two reasons:

1. Firstly, it is hearsay attributed to Mr Jones and is not supported by affidavit attested to by Mr Jones.

2. Secondly, the document is a draft letter, unsigned, and with notes added by Mr Witthuhn (the portions which are underlined) being various proposals about which Mr Witthuhn relies on an explanation given to him by Mr Xavier Giannone, defendant’s project manager, (also hearsay) interdict affidavit: para 44, p.22) and from which the defendant seeks to draw the inference which suit the defendant and which are not the only necessary inferences.

[38] It is submitted on behalf of the plaintiff that inadmissible evidence appearing in affidavits may be struck out without invoking Rule 6(15) and Notice to Strike Out may be brought in terms of Rule (6(11) in application proceedings. Hearsay statements in affidavits are to be struck out irrespective of whether or not there is prejudice.

See: Erasmus; Superior Court Practice: pB1-58

Cultura 2000 v Government of the Republic of Namibia 1993(2) SA 12 (NM) at 27H.

Wiese v Joubert 1983 (4) 182 (O)

Vulcan Rubber Works v SAR & H 1958 (3) S 285 (A) at 296 E.

[39] It is submitted that the plaintiff is prejudiced for the reasons stated in the replying affidavit and the allegations attributed to the principal quantity surveyor must be struck out. In the replying affidavit, case No.7802/09, Mr Luca Liviero, states that following in paragraph 7:

“(a) At this stage I mentioned that various allegations are made as to calculation of penalties by the quantity surveyor and it is submitted in paragraph 15 that:

“The fact that the quantity surveyor’s have imposed the penalties in accordance with the contract demonstrates that I have a defence which is likely to succeed because in acting as they do, the quantity surveyors are performing an independent function in terms of the contract”.

(b) Thus the defendant rests its case on what it says the quantity surveyor’s have done,

3. That is hearsay in the mouth of the deponent, Mr Witthuhn.

4. No confirmatory affidavit is put up by the quantity surveyors.

5. The calculation by the principal quantity surveyor is not signed “in fact there are two calculations and neither are signed”.

6. In fact, as appears from the calculation by the principal quantity surveyor, it is a draft.

7. The calculation is not certified by the principal agent.

8. No confirmatory affidavit by the principal quantity surveyor has been filed.

9. Accordingly, the plaintiff has no alternative but to formally apply to strike out the hearsay allegations attributed to the quantity surveyors.

10. That is so in particular because there are discrepancies between calculation, annexures “BB” and “CC” to the affidavit in the interdict application “e.g. unfixed materials at page 238 are stated to the nil and page 244 as being R2 106 759,38.

11. On an analysis of annexure “BB”, the calculation appears to be a “worse case scenario” for the plaintiff and prepared as one of a number of calculations of possible scenarios. …”

(l) That belief is fortified by the statement in the covering “draft” letter that the valuation “recommended” is:

(i) “for information purposes only”

(ii) “the right to alter the attached recommendation” upon further measurement is “reserved”

(iii) the statement by principal quantity surveyor says that:

“… we highlight that we have been unable to reasonably evaluate the recommendation of the following trades:

Precast concrete

Reinforcing

External works

Plastering””.

[40] The assertion that the principal agent, Mr Jones, issued the payment certificates under a misapprehension is a hearsay statement as to his state of mind and Mr Liviero on behalf of the plaintiff joins issue on the grounds that this was not what Mr Jones told him.

[41] It is submitted on behalf of the plaintiff that provisional sentence is an expedited procedure for a plaintiff holding a liquid document. For a defendant to succeed it must satisfy the court on the preponderance of probability that the plaintiff will succeed in the principal case.

“The onus, moreover, can only be discharged upon facts raised on affidavit and not on inferences from the facts”

See: Syfrets Mortgage Nominees Ltd v Cape St Francis Hotels 1991 (3)

SA 276 (SECLD) at 286F

Inter-Union Finance Ltd v FransKraalstrand (Edms) Bpk 1965 (4)

SA 180 (W) at 192.

[42] It was submitted that it is also against the background that it was submitted by the defendant in its heads of argument (para 24) that:

“The defendant will file the substantive application on Monday 1 November 2009, dealing not only with these confirmatory affidavits but also seeking leave to amplify what is said by the principal agent and the quantity surveyor in regard not only to the potential penalty scenario but also in regard to the estimate of the final project value in relation to the work completed by Liviero”

[43] It is submitted that it is not appropriate for Mr Witthuhn to suggest that it is only when the answering affidavits were filed that the defendant knew that the plaintiff would take the point that the allocations attributed to the Principal quantity surveyors are hearsay. This has been demonstrated by what is referred to in the replying affidavit of Liviero referred to above.

[44] It is submitted that it is trite that hearsay evidence is inadmissible and that wherein in an affidavit allegations are attributed to another, that a confirmatory affidavit must be put up by that person (in particular in provisional sentence). The failure to do so inevitably leads to the inference that the principal agent and the quantity surveyor do not agree with the allegations attributed to them.

[45] The content of the affidavits foreshadowed in the defendant’s heads of argument is different to what has now been said in the further affidavits which were sought to be introduced.

[46] The affidavit received is deposed to by the principal agent who says a draft final account will become available in about 6 weeks. More significant is what he does not say, viz, he does not confirm that the certificates were drawn under a “misapprehension” the only inference it is submitted which can be drawn is that he did not sign the certificate under a misapprehension.

[47] If any inference is to be drawn, it is that the plaintiff is justified in concluding that the principal agent and quantity surveyor disavow what is attributed to them by the defendant.

[48] It is no explanation for the defendant’s attorney to suggest that the quantity surveyor declined to depose to an affidavit because he is a professional person who wishes to remain impartial where the accuracy of what is attributed to a professional person is challenged then he would be expected to depose to an affidavit if it were correct.

[49] It was submitted on behalf the plaintiff that the hearsay evidence sought to be introduced does not fall within any recognised exceptions. It is common cause between the parties that the sections of the affidavit sought to be struck out are indeed hearsay evidence, the issue is whether such hearsay evidence can be admitted in terms of the exceptions referred to in section 3(1)(c) of the Law of Evidence Act 45 of 1988.

[50] For the reasons advanced above, the defendant has argued that the hearsay evidence can be accepted and admitted in terms of the six exceptions referred to in section 3(1)(c) of the Act. The plaintiff has argued to the contrary. The issue therefore is whether the hearsay evidence can be admitted in the interest of justice as provided for in terms of section 3(1)(c) of the Act.

[51] It is trite that in order to properly apply section 3(1)(c) of the Law of Evidence Amendment Act, all six factors mentioned therein need to be taken into account and it may be more important to give effect to their combined weight that to regard each as a separate determinant of admissibility.

See: Hewan v Kourie NO & Another (1993)(3) SA 233 (T) at 239

B-C, where Du Plessis J states the following:

“Section 3(1)(c) requires the Court in the exercise of its discretion, to have regard to the collective and interrelated effect of all the considerations set out in paragraphs (i) to (vi) and also to ‘any other factor which should in the opinion of the Court be taken into account’ (para vii)”

See also: Makhathini v Road Accident Fund 2002 (1) SA 511 (SCA) at 522 C-D, where Navsa JA states the following:

“The factors set out in section 3(1)(c)(i)-(vii) should not be considered in isolation. One should approach the application of section3(1)(c) on the basis that these factors are interrelated and that they overlap.”

[52] Considering the provisions of Act 45 of 1988, the argument advanced on behalf of both parties in this regard, the authorities referred to on behalf of both parties and their respect heads of argument, I am of the view that this Court should exercise its discretion against in favour of admitting the hearsay evidence in terms of the provisions of section 3(1)(c) of the Law of Evidence Amendment Act of 1988 in that it is not in the interest of Justice to admit such evidence.

[53] In the circumstances, the application to strike out should succeed. Accordingly, paragraphs 8, 12 and 15 of the answering affidavit of Wessel Pretorius Witthuhn are accordingly struck out.

Provisional sentence

[54] These provisional sentence proceedings, brought by the plaintiff arise from interim certificate issued in terms of the same building contract between the parties. The claims are for:

(a) R 1 053 261,86 (Certificate 19) in case No.7802/09; and

(b) R16 517 366,35 (Certificate 23) in caseNo.7803/09.

The defences to each action are identical and the two applications would be dealt with as if they are a single claim.

[55] The plaintiff has two certificates on which it claims provisional sentence and has threatened to present them to an independent insurer. Mr Broster submitted that the papers reveal that the owner is concerned that the builder is going to go into liquidation. The owner’s belief is if he pays the builder, the builder goes into liquidation, he has to pay a second time. To try and get around this problem, the owner suggested to the builder that it pays subcontractors direct. The builder refused that its subcontractors be paid direct. Mr Broster argued that if one looks at the two certificates, then by far, the greater amount of money that is due to the builder has to be passed on to the subcontractors. In broad terms, it is about R2 000 000,00 that would go the builder and the remaining R15 000 000,00 or R16 000 000,00 would be passed on to the subcontractors. He submitted that it is against that background that these proceedings must be seen.

[56] Mr Harcourt on the issue of a double payment submitted that the fundamental issue which has not been dealt with in Mr Broster’s argument is the unique procedure in provisional sentence that the claim is made on the liquid document at the outset. Payment must be made de restituendo. Mr Harcout submitted correctly, in my view that, the point is that if provisional sentence is granted, payment does not have to be made by the defendant until such time as security is given. He submitted that it is put on the papers and it is not disputed that the security invariably required by the Registrar is the guarantee by financial institution, that is, a Bank or Insurance Company.

[57] Mr Harcourt submitted, correctly in view that, the submission by Mr
Broster that the defendant runs the risk of having to pay twice because it might pay out and it cant get the money back because the plaintiff is placed in liquidation is not correct. The position is that if provisional sentence is granted, no payment has to be made until the bank or the insurance company puts up a guarantee for repayment. That claim for repayment is not against G Liviero and Son’s Building (Pty) Ltd. It would be against one of the banks or insurance companies. There is therefore no question of any risks of any kind of the defendant being in a position where it may possibly have to claim against the plaintiff. The claim will be against the bank or the insurance company. Before the plaintiff can be paid it must give security to the defendant. If there is any amount which becomes repayable, then there is security for it from a financial institution.

[58] The defendant’s risk in this regard is adequately addressed in the plaintiff’s replying affidavit wherein he stated as follows at paragraph 36(c):

“As the defendant only has to pay as against the security being furnished de restituendo, then there is no risk that if in arbitration, the plaintiff is found to owe the defendant, some or other liquid document that the plaintiff will not be able to pay that amount to the defendant”.

What is clear from this paragraph of the replying affidavit is that the solvency of plaintiff is simply irrelevant.

[59] In the light of the above, I find that there is no risk that after arbitration the plaintiff is found to owe the defendant, some or other liquid amount, that the plaintiff will not be able to pay that amount to the defendant. The argument misses the basic premise of provisional sentence that there must be security. I therefore find that Mr Broster’s submission in this regard has no substance and falls to be rejected.

Pending adjudication process

[60] Mr Broster’s argument in this regard is that the contract makes provision for a dispute resolution process in the building contract. The adjudication process is in progress and remains unresolved. The plaintiff cannot claim that at the same time it can engage the Court in provisional sentence proceedings in the very same fight. Mr Broster submitted that the only way to bit penalties in a contract of this nature is for the builder to apply for extentions of time. It is clear from the papers that a great number of extentions of time applications have already been adjudicated on, two or three were granted, the bulk were rejected. The builder then went to the adjudication rules that apply when this happens and in fact, he told the Court that he was expecting adjudication before the date of this hearing. But, as at the date of the hearing, it is common cause that there has been no adjudication. What is significant about it is that he is in the adjudication process within the building contract and that process in broad terms says that the Principal Agent makes a ruling, the dissatisfied party goes to arbitration, an adjudicator is appointed, he makes a decision. It then goes to arbitration and significantly the contract says that the arbitrator’s decision is final and binding on these disputes.

[61] Mr Broster submitted that the plaintiff has not seriously challenged the fact that contractual penalties for late completion of the work exceeds R45 000 000,00. I may as well mention that it is the defendant’s defence that the penalties for late completion will exceed the amount of the certificates which is approximately R17 500 000.00.

[62] The plaintiff has clearly invoked the dispute resolution procedure in terms of clause 40.1 of the principal building contract and that procedure on the plaintiff’s own version has not been exhausted.

[63] Section 40 of the principal building contract makes provision for dispute settlement. Section 40(1) provides as follows:

“Should any disagreement arise between the employer or his agents and the contract as to any matter arising out of or concerning the agreement or its interpretation or cancellation, either party may give notice to the other to resolve such disagreement”.

Clause 40(2) provides as follows:

“Where such disagreement is not resolved in ten (10) working days, it shall be deemed to be a dispute and shall be submitted to”

Clause 40(2)(1):

“Adjudication in terms of the JBCC rules for adjudication current at the time when the dispute is declared. The adjudicator shall be appointed in terms of such rules”

Clause 50(5) provides:

“A dispute which has been the subject of a notice of dissatisfaction, shall be finally resolved by a single arbitrator who shall be the person stated in the schedule. Where the person stated in the schedule is unwilling or unable to act or where no person has been stated in the schedule, the Arbitrator shall be charged and appointed by mutual agreement between the parties. Where no agreement has been reached between ten working days, the Arbitrator shall be the person appointed at the request of either party by the chairman of the time being or his nominee, or the association of arbitrator’s (South Africa)”.

In terms of this dispute resolution clause, the decision of the Arbitrator is final and binding.

[64] Mt Broster submitted that our Courts enforce alternative dispute resolution procedures particularly where they are clear and enforceable.

See: Southern Port Developments (Pty) Ltd v Transnet Ltd 2005(2) SA 202 SCA, where Ponnan AJA said at 211 F-G:

“The express undertaking to negotiate in good faith in this case is not an isolated edifice. It is linked to a provision that the parties in the event of their failing to reach agreement, will refer such dispute to an arbitrator who’s decision is final and binding. The final and binding nature of the Arbitrator’s decision renders certain and enforceable what would otherwise have been an unenforceable preliminary agreement”.

[65] Mr Broster submitted that this is precisely what has happened in this case. The builder is in the adjudication process which he has agreed to. It has to go the arbitrator. The plaintiff in this matter is already participating in the adjudication process and awaiting the outcome of that adjudication.

[66] Referring to the case of University of Stellenbosch v JA Louw (Pty) Ltd 1983 (4) SA 321 (A), Mr Broster submitted that legal proceedings are stayed pending the determination of arbitration proceedings unless there are compelling reasons for refusing to hold the party to his contract, to have the dispute decided by arbitration.

[67] Mr Broster also referred to the case of Swartz NO v Pike and Others 2008(3) SA 431 SCA at 438 C – D. where Heher JA after referring to the judgment of Ponnan JA quoted above said:

“Put simply, if the appellant wished to derive the benefits of the process he was obliged to participate in it in accordance with the agreed terms”.

[68] He then submitted that English Law has evolved in a remarkably similar way and it is safe to conclude that alternative dispute resolution clauses are enforceable as a pre-condition to arbitration or mediation.

See: Holloway v Chancery Mead Ltd (2007) EWHC 2475.

Broster submitted that Wessels JA in Ridge and Others v Lagerwey (1974) 748 AD at 760 D said:

“If regard is had to the history of provisional sentence practice and procedure, I am of the opinion that it was never intended to serve as weapon in terrorem in the hands of a creditor”

[69] Mr Broster submitted that it is precisely what the plaintiff in the provisional sentence application is trying to do. It was never the purpose of provisional sentence to be used in this way. In this case the builder is in the adjudication and publication process and he cannot at the same time come before this court to be assisted with provisional sentence.

[70] On the issue of the alternative dispute resolution, Mr Harcourt submitted that there was a submission by Mr Broster that some how or another, because applications for extension of time, not relevant in the certificate, had been sent to adjudication, which is a necessary for-runner to arbitration in terms of the dispute resolution clause, that this precluded provisional sentence on the interim certificate. He submitted that there are serious difficulties with this notion and those difficulties start with the fundamental problem that for there to be alternative dispute resolution, for arbitration, there must be an underlying dispute. In this case there is no dispute. In this case we have a position where a certificate has been issued. On the face of that certificate, it is perfectly valid. There has been no final accounts, let alone final certificates by the principal agent. It is unknown whether when it is issued there will be a dispute. The plaintiffs may well be vindicated and the penalties are not allowed in the vast amount perceived by Mr Witthuhn. It stands to reason that before one can refer to alternative dispute resolution and arbitration, that there must be a dispute which can be so referred. In this regard Mr Harcourt referred to the case of Parekh v Shar Jehan Cinemas (Pty) Ltd and Other 1980 (1) SA 301(D), where Didcot J said the following (at page 305 D-H):

“The exception was based, however, on a fallacy. An arbitration agreement does not deprive the Court of its ordinary jurisdiction over the disputes which it encompasses. All it does is to oblige the parties to refer such disputes in the first instance to arbitration, and to make it a prerequisite to an approach to the court for the final judgment that this should have happened. While the arbitration is in progress, the court is there whenever needed to give appropriate directions and to exercise due supervision. And, the award of the arbitrator cannot be enforced with the court’s imprimatur, which may be granted or with held. But, that is by no means all. Arbitration itself is far from an absolute requirement, despite the contractual provision for it. If either party takes the arbitrable disputes straight into court, and, the other does not protest, the litigation follows its normal cause without a pause. To check it, the objector must actively request a stay of the proceedings. Not even that interruption is decisive. The Court has discretion whether to call a halt for the arbitration or to tackle the dispute itself. When it chooses the latter, the case is resumed, continued and completed before it like any other. Throughout, its jurisdiction, though sometimes latent thus remains intact. That all this is so emerges from such cases as:

Davis v British Insurance Company (1985) 3SC 416;

Walters v Allison 1922 (NLR) 238;

Rhodesian Railways Ltd v McIntosh 1932 AD 359;

Yorigamy Maritime Construction Company Ltd v Nissho-Iwai Company Ltd 1977 (4) SA 6 A-C”.

[71] Didcot J also stated the following at 304 E-G:

“Arbitration is a method for resolving disputes. That alone is its object, and its justification. A disputed claim is sent to arbitration so that the dispute which it involves may be determined. No purpose can be served, on the other hand, by arbitration on undisputed claim. There is then nothing for the arbitrator to decide. He is not needed, for instance for a judgment by consent or default. All this so obvious that it does not surprise one to find authority for the proposition that a dispute must exist before any question of arbitration can arise. It includes:

Re Carus-Wilson and Green (1887) 18 QBD 7 (CA);

London and Lancashire Fire Assurance Company v Imperial Cold Storage & Supply Company Ltd (1905) 15 CTR 673;

King v Harris 1909 TS 292.”

[72] This case was approved by the Supreme Court of Appeal in the case of PCL Consulting (Pty) Ltd, trading as Phillips Consulting SA v Tresso Trading 119 (Pty) Ltd 2009 (4) SA 68 (SCA) at page 74 paras B – G.

[73] Mr Harcourt submitted correctly, in my view that, in the present case, the Architect certificate had already been issued. This is enforceable by this Court, by means of provisional sentence. If there is at a various stage, at some stage an arbitration that may become relevant when the defendant enters into the principle case. As things stands, arbitration does not preclude a court of exercising its inherent jurisdiction in matters which are not directly the subject of a dispute.

[74] Mr Harcourt submitted correctly in my view that it is quite usual for litigation and arbitration to proceed in parallel. He then referred to the case of Petric Construction CC trading as AB Construction v Toasty Trading, trading as Furstenburg Property Development and Others 2009 (5) SA 550 (ECG). This is the decision of the Eastern Cape High Court, sitting in Grahamstown. In this case, litigation and arbitration proceeded parallel. The employer and the contractor were actually in the cause of arbitration. Whilst this was going on, the contractor submitted a claim under performance guarantee to the financial institution who issued it. The court found that the employer could not even participate in those proceedings because it was not a party to the performance guarantee. By necessary implication, whether or not arbitration proceedings were going on, is simply irrelevant.

[75] Mr Harcourt submitted correctly in my view that the two cases relied upon by Counsel for the defendant, namely Southern Port Development Ltd v Transnet Ltd supra and Swarts NO v Pike and Others 208 (3) SA 431 are not in point. He submitted that these cases are distinguishable. In the Southern Port Development case, the issue was that the general agreement provided that before a matter could be referred to arbitration, there was a preliminary condition that the parties must negotiate between themselves in good faith. The court held that such negotiations in good faith were a necessary requirements before the matter could proceed to arbitration. That is not the case in the instant case. This case deals with the extensions of time claims which do not relate to the present certificates. The dispute resolution clause, clause 40 of the building contracts, provides for adjudication before the arbitration, with regard to the objective extension of time claims, that adjudication processes are underway. That is a precondition to arbitration. But when the principal agent issued the certificates, he did so independent of those claims. Even if there is an arbitration on those extensions of time claims, all it can mean is that, the plaintiff is entitled to bait more, over and above and different to the existing certificates. All that we have on record so far regarding any possible arbitration is that final accounts will be delivered six weeks from 4 November 2009 and that is an approximation. Whether that does ever engender any arbitration at this stage is at this stage speculation.

[76] Considering all the above, I am satisfied that Mr Broster’s argument that, provisional sentence provisions should give way or be stayed pending the finalisation of the adjudication has no substance. I am therefore satisfied that this argument falls to be rejected and is accordingly rejected.

Whether the two certificates were issued in accordance with the contract.

[77] The defendant’s defence is that the plaintiff in these proceedings sought to first to obtain payment when it had no right to do so because it new that the two certificates upon which it relied for payment had been issued otherwise than in accordance with the provisions of the principal building contractor and as such were invalid. In addition, the defendant alleges that the imposition of penalties demonstrate that those exceed R45 million and the plaintiff knows that if imposed, these penalties will result in a substantial balance owing to the defendant by the plaintiff.

[78] Mr Broster submitted that the one set of papers that the court does not have, involves the application to reopen the gate to the site. The builder was unhappy because he had not been paid on the certificates. There were 4 thousand subcontractors on this site and he shut them out, and he left the site. He walked off the site, in broad calculation, for four to five days. He shut the sites down and took everyone off the site. That is where the litigation started. The owner went to court in Durban, he got an order restoring possession of the site. He submitted that the builder did not oppose that application on the merits, he said he was to fight about the costs in due course. The next step was that the owner said to the builder that the builder had repudiated the contract, and that it is cancelled. The builder maintained that there had been no repudiation and when the notice for payment expired, he claimed consideration in terms of the contract. It is common cause that the contract makes no provision for common law repudiation by either of the parties. It has a series of cancellation clauses but it absolutely silent on what is to happen where there has been repudiation.

[79] Mr Broster submitted that it is clear from the application papers that one of the unresolved issues on these papers is how those certificates came to be issued. On the applicant’s version, the following happened. There were discussions about extensions of times, there were discussions of how the contract was going to be completed and those discussions all became bundled up in annexure “S” to the application papers. Annexure “S” is a letter addressed by Mr Jones office, the principal agent, and is dated 7 July 2009. The letter has a signature space for Mr Howard Jones to sign. The heading of this letter is: “Revised practical completion date”. On the last page of the letter, there is a place for signature by the builder, G Liviero and Sons. It is convenient to set out the contents of the letter.

“Dear Luca

FERMONT ZIMBALI – REVISED PRACTICAL COMPLETION DATE.

With reference to the above and the numerous meetings held to discuss this subject enclosed please find a schedule setting out the “Revised practical completion dates” for each of the separate sections.

As discussed, these revised dates are subject to the following conditions:

1. These revised practical completion dates replace the previous dates as confirmed in the signed contract agreement. Xavier must check these dates with what we discussed. I do not have notes here with me.

2. These dates do not include the installation of the “FF” and “E” and the installation of the “FF” and “E” will commence after practical completion. What is the PC date? Does this tie in with the opening date?.

3. Penalty values for each section remain as per those incorporated in the signed contract agreement. The new penalty cannot be the same as the original penalty. Please send me a penalty schedule as previously requested.

4. Should any of the sectional practical completion dates as reflected in the attached scheduled be missed, a penalty will be deducted for that section as per the signed agreement. This amount will be held as a penalty provision. What is the amount?

5. Provided that the hotel is able to open for trading on 15 September 2009, the amount held as penalty provision, less direct cost incurred by IFA as a result of the extended construction period, will be released and paid to Liviero. Noted.

6. Extensions of time due to Liviero will continue to be adjusted by MLD in terms of the contract. No more extensions to be revised and final completion dates.

7. As a trade-off against the relaxation of the date at which penalties will be applied, no P and G will be paid. P and G will, however, be paid for the extension of time granted for the Royal Suites. No – this was not agreed. The additional time given by the IFA covers this.

Kindly acknowledge acceptance of the Revised Practical completion dates and above listed conditions by signing the space provided.

Yours sincerely

Howard Jones

Signed ….

For: G Liviero and Son Building (Pty) Ltd”

[80] What Mr Jones is asking Mr Liviero to do in this letter is to signify his acceptance by signing the document.

[81] It is clear from the document itself, annexure “S” that is was not signed by the parties. Mr Broster then referred to clause 1.8 of the buildings agreement which provides as follows:

“This agreement is the entire contract between the parties regarding the matters addressed in this agreement. No representations, terms, conditions or warrantees not contained in the agreement shall be binding on the parties. No agreement or addendum varied, adding to, deleting or cancelling this agreement shall be effective unless reduced to writing and signed by the parties”.

[82] Mr Broster submitted that it was after that document annexure “S” was not signed that the two certificates that the plaintiff relied upon were issued. He submitted further that it is in those circumstances that the certificates were not issued in accordance with the contract. One cannot ignore clause 1.8 of the contract that says unless it is in writing, it is not an amendment or alteration. According to Mr Broster, the certificates that were issued, were issued as if the agreement had been concluded, when in truth it had not because the documents were not signed. The principal agent could not issue those certificates until this letter (annexure “S”) was signed.

[83] He then referred to the affidavit in the application papers and submitted that the same Mr Jones said the following, when he wrote to one of his employer’s representatives:

“Hi, Xavier,

I am meeting with Luca (who is Mr Liviero) at 9h00 tomorrow morning to discuss the revised hand over schedule. That was the first time possible.

In the meantime, we are proceeding with the scheduled as if accepted.

The approval by Luca is really academic because his site team have accepted them”.

[84] Mr Broster submitted that, that illustrates what the principal agent thought but clause 1.8 of the agreement has for years been subject to controversy which was finally put to bed quite firmly in the case of Brisley v Drotsky 2002 (4) SA 1 (SCA) at 34 D, where Cameron JA said:

“The Shifren decision represented a doctrinal and policy choice, which on balance, was sound. Apart from the fact of precedent and weighty considerations of commercial reliance and social certainty, that choice in itself remains sound four decades later.”

[85] Cameron JA also said the following in this case:

“The appellant’s attach invites us to reconsider the decision. That is the old Shifren decision that said, if the contract says it must be in writing, then it must be in writing. We are obliged to do so in the light of the constitution and our general obligation which is not purely discretionally to develop the common law in light of fundamental constitutional balance …”

[86] Mr Broster submitted that before that decision, there was a movement towards the type of jurisprudence that said, well perhaps it is overly technical, that the document should be in writing when the contract requires it to be. Maybe we can lead evidence that there was an oral agreement to contradict the written agreement, but ever since this decision, it has become clear, we have gone back to the first principle, if it is not in writing, the contract obliges it to be in writing then it is not agreed to in between the parties. He then submitted that this dispute falls to be resolved in the defendant’s favour. Namely, that the dispute as to whether these certificates were issued in terms of the contract. The certificates were issued as if the writing had been agreed to when in fact on the papers before court, it was clear that it was not.

[87] Mr Broster submitted that, if the Court finds that the certificates were not issued in accordance with the contract, then that is completely the end of the matter. The Court should refuse provisional sentence on that basis. He then referred to the case of Roads Agency Limpompo (Pty) Ltd v Murray and Roberts Construction Ltd and Others (496/08) (2009) ZASCA 128 (29 September 2009, paragraph 18 and 19.

[88] Mr Harcourt submitted that the Roads Agency Limpompo case, supra, is distinguishable from the present case. He submitted that the certificate in that case is quite unusual as an interim certificate. He then referred to the judgment of Hurt AJA, paragraph 6 of the same case where the following is stated:

“RAL disputed the contractor’s assessment that it was entitled to payment of the amounts claimed. It contended that it had rejected certificates 10 and 11 because they had been wrongly compiled by the Engineer. In taking this action, RAL purported to have acted under the provision of clause 2.8 of the contract which reads:

“Notwithstanding any provisions to the contrary in the contract, the employer shall have the right to reverse and, should he deem it necessary, to amend any certificate, direction, decision or valuation of the engineer and to issue a new one, and such certificate, direction, decision or valuation shall for the purposes of the contract be deemed to be issued by the engineer, provided that the contractor shall be remunerated in the normal manner for what executed in good faith in terms of an instruction by the engineer and which has subsequently been rescinded”

[89] Mr Harcourt submitted that, that clause is a very unusual clause usually the employer cannot interfere with the exercise of discretion by a principal agent. In this regard, he referred to the case of University of Stellenbosch v J A Louw, (EDMS) Bpk 1983(4) SA 321 (A).

He then submitted that, that case is distinguishable from this case is clear from the judgment of the Court in paragraph 9 of Roads Agency Limpompo case, where the Court stated the following:

“The real trust of the argument was directed at the proper interpretation of clause 2.8 and the scope of the power conferred by it on RAL. It must immediately be said that this is a novel clause in the field of building and engineering contracts. The earlier forms of the standard contracts bound the employer to pay interim certificates while the contract remained in force and disagreements concerning the amount certified were deferred for resolution when the contract work had been completed or, in some cases, became the subject of amendment in a subsequently issued certificate. (See Thomas Construction (Pty) Ltd in Liquidation v Grafton Furniture Manufacturers (Pty) Ltd 1986 (4) SA 410 and at 516 and 517, this judgment was confirmed on appeal, see Thomas Construction (Pty) Ltd (In Liquidation v Grafton Manufacturers (Pty) 1988(2) SA 546 A.) But it is trite that each contract must be construed according to its own terms (and not those of other standard contracts), and it is necessary for the purposes of this appeal, to consider the scope of the right conferred on RAL by clause 2(8)”.

[90] Mr Harcourt submitted that, that certificate is a unique and different one, it is not like the usual certificate where the employer has to employ a principal agent, who is an expert in the field of construction work and an independent expert to exercise a fair and independent judgment on the issue of a payment certificate.

[91] Clearly, the reliance placed by the defendant on the Road Agency Limpompo (Pty) Ltd v Murray and Roberts Construction Ltd, supra, is misplaced. In that case, the court remarked that the particular terms of that engineering contract was unusual because it entitled the employer to “reverse” the certificate. The court stated as follows at para 9:

“It must immediately be said that this is a novel clause in the field of building and engineering contracts. The earlier forms of standard contracts bound the employer to pay interim certificates whilst the contract remained in force and disagreements concerning the amounts certified were differed for resolution when the contract work had been completed or, in some cases, became the subject of amendment in a subsequent issued certificate. But, it is trite that each contract must be construed according to its own terms (and not those of other standard contracts)…”

[92] The building contract in this case has no such provision for reversal or amendment of the certificate by the employer as Mr Harcourt correctly submitted. Accordingly, reliance by the defendant in the case Road Agency Limpompo v Murray & Roberts Construction Ltd, supra, is indeed misplaced.

[93] On this issue, Mr Broster referred to the case of Rich and Others v Lagerwey, supra, and Mr Harcourt referred to the following cases:

Lesotho Diamond Works (Pty) Ltd v Lurie 1975 (2) SA 1420 at 144 where the Court stated:

“Provisional sentence is a mode of procedure provided for in the Rules of Court but which have already existed in Roman Dutch Law under the appellations “namptissementt” “ and “handvulling” . The essence of the procedure then and now is that it provides the creditor who is armed which sufficient documentary proof (a liquid document) with a speedy remedy for the recovery of money due to him without having to resort to more expensive, cumbersome and often dialatory machinery of illiquid action”.

[94] The test as to when provisional sentence should be granted is – where, as in the present instance, the plaintiff sues for provisional on an illiquid document.

“The Court will ordinarily grant provisional sentence unless the defendant produces such counter proof as it would satisfy the court that the probability of success in principle case is against the Plaintiff”.

See: Herbstein en Van Winsen: The Civil Practice of Superior Courts in SA, 3^rd ed at 551.

[95] In deciding where the probabilities of ultimate success lie, the Court should have regard to where the onus of proof will lie in the principal case. See: Barclays National Bank Ltd v H.J. De Vos Boerdery 1980 (4) SA 475 at 484 C-E, where the Court held:

“In order to defeat appellants claim for provisional sentence, respondent had to produce such counter proof as to satisfy the court that the probability of success in any principal case which might eventuate is against appellant. And, in considering the probabilities of success, the question as to who bears the burden of proof in the principal case is relevant, because it is one of the circumstances which has a bearing upon its probabilities in the principal case”.

[96] There is therefore no doubt that in the present case, the onus of proof is on the plaintiff in the provisional sentence matters. The plaintiff must show on a preponderance of probabilities that it has a valid defence in law.

[97] Mr Harcourt submitted that the Architect acted as the employers’ agent and therefore binds the employer. The contract provides that the principal agent has full authority to act in terms of the agreement. The contract contemplates that at all times the employer will be represented by principal agent because there is an express provision that in the event that a principal agent ceases to act, then a substitute will be appointed. That is because, in the nature of a building contract, the builder is entitled to expect to be supervised by a professional who will act fairly and impartially in particular in issuing payments certificates. Significantly, no affidavit is put up by the principal agent in this regard and what is said by the defendant’s deponent is hearsay as to the principal agent’s state of mind.

See: Ocean Dinners (Pty) Ltd v Goldern Hill Construction CC 1993(3) SA 311 (A) at 342 J and University of Stellenbosch v J. A. Louw, supra.

[98] The defendant contends that the payment certificates were issued on the basis of a misapprehension as an underlying agreement which was void and having failed to comply with formalities required by the non-variation clause in the contract. The plaintiff submits that in as much as the defendant relies in an misapprehension as to the basis on which the payment certificates were issued, then it is principal agent’s state of mind which is significant and not the state of mind of the director of the defendant as employer.

[99] Mr Harcourt submitted correctly, in my view that, a non-variation clause relates to the formation or change of an agreement but not necessarily to the performance. He referred to the case of Telcordia Technologies Incorporated v Telcom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 (SCA) where the varied performance by one party was accepted by the other, the Shifren doctrine was held to be inapplicable (at paras 102 – 116 pages 306 – 310).

[100] Mr Harcourt submitted further that as has been explained, what was done by the principal agent was not a variation of the agreement, but an exercise of the principal agent’s independent judgement in the execution of the contract. This submission is in my view correct.

[101] It was further submitted on behalf of the plaintiff that the defendant’s contention must be rejected for the following reasons:

• Those allegations are disputed by the plaintiff and the defendant has failed to discharge the onus;

• It was not a variation agreement but a Revision of Works Programme by the principal agent, who has not deposed to an affidavit (and challenged by the plaintiff on the basis that there was no misunderstanding)

• Clause 29 of the contract provides for the Principal Agent to revise the dates for practical completion. A dispute as to rejected claims for extention of time has been referred to adjudication.

• Clause 30 of the contract provides for penalties for delay to be included in monthly recovery statement issued simultaneously with the minority interim statements certificates in terms of clause 31 which is them adjusted (i.e. deducted) in terms of clause 31.5 of the interim monthly payment certificate.

• No calculation as done by the Principal Quantity Surveyor is provided for in the contract.

[102] Mr Witthuhn contended that “All parties were under the impression that agreement had been reached on the revised completion schedule but not a penalty schedule. What was required was to reduce the terms any agreements in this regard to writing” that was what Mr Jones said. No affidavit was put up by the defendant or by Mr Jones. In saying that all parties were under a misapprehension is a hearsay statement regarding Mr Jones’s state of mind.

[103] It has been stated earlier on in this judgment that the onus can only be discharged upon facts raised on affidavits and not inferences from the facts. Without an affidavit by Mr Jones in this regard, one may not know what was going on in his mind. Mr Jones has put up an affidavit, but he deliberately avoids saying anything about this at all.

[104] It is clear from the above that the defendant has failed to discharge the onus of proving any misapprehension alleged. In the result, I am satisfied that the two certificates were issued in accordance with the contract.

Defences on Affidavit

[105] The defendant’s defence is set out as follows in the answering affidavit:

Paragraph 8

“It is the defendant’s case that when the filed certificates had been prepared, they will reflect an amount of R14 862 962,90 as due to the defendant after the imposition of the penalties already calculated by the Quantity Surveyor as being due by the plaintiff in terms of the contract because of delay. The amount certified in the certificates in issue in the provisional sentence proceedings will consequently not be payable at all, despite the fact that the certificates were issued, because in the final result nothing is due to the plaintiff”.

Paragraph 12

“I wish to emphasise that the penalties have been calculated by the quantity surveyors in accordance with the provisions of the contract as at 25 August 2009. If the date of calculation proves to be later then, the penalties will simply increase”

Paragraph 15

“The fact that the Quantity Surveyors have imposed the penalties in accordance with the contract, demonstrates that I have a defence which is likely to succeed because in acting as they do, the Quantity Surveyors are performing an independent function in terms of the contract. Until their penalty calculation is set aside, the plaintiff has no expectation that a filed certificate will show any amounts due in its favour”.

The three paragraphs referred to above which are alleged to constitute the defendants defence, have already been struck out earlier on in this judgment. The defendant can therefore no longer rely on these paragraphs.

Penalties

[106] The case has been made that there are massive penalties because the contract had to be completed by 15 September 2009. There is a dispute as to the grossly unreasonable refusal of extensions of time. All that is in support of the suggestion that because at some future date, the might be imposition of penalties which reduce the amount which is already been awarded, and therefore there shouldn’t be provisional sentence. In support of the suggestion that there would be these massive penalties and that nothing would be allowed, the defendant relies on a calculation by the quantity surveyor. The problem in this regard is that it is not the quantity surveyor who is authorised to grant extensions of time in terms of the contract, it is the principal agent. In paragraph 15 of the answering affidavit it is alleged that quantity surveyors have imposed the penalties in accordance with the contract. That is not correct, they have not imposed the penalties because they are not the party who imposes penalties or decides on extensions of time. It is the principal agent who does that function. The defendants’ attorney in an affidavit says that the quantity surveyor’s have declined to furnish an affidavit. This is another instance where the defendant does not rely on affidavit to discharge the onus.

[107] It has been submitted on behalf of the defendant that the Court also has a discretion to refuse or postpone provisional sentence proceedings pending the determination of a larger dispute between the parties. The Court has been referred to the case of Mao-Cheia v Neto 1981(3) SA 829 (C) at 832 A – B. The plaintiff contended that at the outset an Architect certificate with interim payments is by its definition part of a larger transaction. He submitted that it is clear that this is not one of those matters where the so-called larger transaction issue can be involved because of the necessity that the builder be paid a liquid document each month in terms of the contract. Mr Harcourt referred to the head-note of this case wherein the following stated:

“Where the liquid document upon which each section of provisional sentence is based, is part of a larger transaction which is in dispute between the parties and where the probabilities in the principle case fail the defendant, or there are proximately evenly balanced, provisional sentence be either refused or postponed pending the determination of such principal case. The discretion to postpone a provisional sentence case in such circumstances, is not confined to cases where the validity of document is in question”.

[108] Mr Harcourt submitted that the facts of the Mao-Cheia v Neto, supra, were that there was a settling of an account with regard to the balance outstanding for the stock and in trade of the business which had been sold. The Court in that case relied substantially in the judgment of Ottico Meccanica Italiana v Photogrammetric Engineering (Pty) Ltd 1965 (2) SA 276 (D) a judgment of this division. Mr Harcourt then referred to page 834 (C) of the Mao-Cheia case, supra, where the following is stated:

“Prejudice to the defendant in the sense that he may be enable to institute or proceed with the principal case if provisional sentence is granted in itself, can never be a reason for granting a postponement because the possibility of such prejudice is, necessarily inherent in all provisional sentence cases. The prejudice that will be suffered by the plaintiff in being deprived of the speedy relief afforded by provisional sentence cases must as I have said always be a factor against the granting of postponement”.

[109] Counsel for the plaintiff argued that provisional sentence proceedings should be adjourned until after Mr Jones had delivered the final account which would be somewhere on 15 December 2009. It was submitted that those cases do not anticipate any postponement regarding an Engineer’s certificate. They contemplate the adjournment of a case pending another case or the principal case. These proceedings in any event were never postponed.

[110] The defendant has also alleged that the imposition of prior penalties in this contract had been uphazard and arbitrary. Penalities of R3.35 million where imposed in May certificates based on a revised targeted construction date, prepared by plaintiff and not on the contractual completion date. This amount was simply doubled in the June certificate to R6.7 million (and there was no calculation by the principal agent or principal quantity surveyor of that amount). He further alleges that no penalties were imposed when the July certificates were issue, which is illogical on the defendant’s case because that would mean that the defendant’s had caught up with the contracts programme whereas the defendant contends that the plaintiff is falling further and further behind.

[111] Mr Harcourt submitted that this just shows that there is no discharge of any onus by the defendant with regard to this counter claim. That is just an unqualified counter-claim which will have to be resolved as indicated earlier if there is anything like what the defendant claims is an extended arbitration. He submits further that although Mr Witthuhn sought to put up further affidavit, he did not even reply to the allegation in an application for leave to lead further evidence. No attempt was made to explain those inconsistences.

[112] Considering all the material in this regard, all the defendant has raised is an unqualified claim for possible penalties which would all certainly go to arbitration. If there is a dispute as to the disallowance of substantial claims for extensions of time as the contract has imposed what is called vicious penalties, then there is a further probability that there will be reduced as excessive penalties in terms of the Conventional Penalties Act.

[113] Mr Harcourt submitted correctly in my view that all that the defendant has raised is an unqualified claim for possible penalties which will almost certainly go to arbitration. This is not a valid defence to provisional sentence.

Cancellation/Repudiation

[114] The question of the effect of the cancellation of the agreement is not dealt with on the basis that one must look at which party cancelled. In the answering affidavit in the provisional sentence, when the defendant deals with the question of cancellation, it is dealt with on the basis that it does not matter who cancelled. In paragraph 6 of the answering affidavit in the provisional sentence, Mr Witthuhn stated the following:

“… I admit that interim certificate issued in terms of the building contract in most circumstances have the quality of liquidity to found a claim for provisional sentence. I deny that this is so in the present proceedings because the building contract between the parties was cancelled either by the defendant on 30 August 2009 by the acceptance of the plaintiff’s repudiation or by the plaintiff on 10 September 2009, claiming that the defendant was in breach of its obligation in terms of the contract. A copy of the plaintiff’s letter of cancellation is annexed hereto marked “A””.

[115] In paragraph 7 of the same affidavit, the defendant proceeds and alleges that irrespective of which version of the cancellation is found to be correct, the contract has been cancelled. That upon cancellation the need for the preparation of the final accounts by the Principal Agent arises and this may be done in terms of clause 36.5.3 or 39.3.5.

[116] It has been suggested on behalf of the defendant that somehow or another, that cancellation vitiate the certificates which have already been issued. The plaintiff in this regard submitted that where the cancellation is made at the instance of the contractor, and the contractor is the innocent party, then the contractor is entitled to sue on interim certificates already issued before the cancellation. The plaintiff has submitted that any purported repudiation of this contract by the defendant was in any event invalid. The plaintiff submitted that if such certificate is duly issued if the contract fastens the employer with liability to pay the amount certified to the contractor within the time limit.

[117] Mr Harcourt referred to the case of Joop Joop investments (Pty) Ltd v Stocks Mavundla ZEK Joint Venture 2009(5) SA 1 SCA at para 17 where Navsa JA of, the Supreme Court of Appeal said the following:

“Goven AJ pointed out with reference to Randcon (Natal (Pty) Ltd v Florida Twin Estate (Pty) Ltd 1973 (4) SA 181 (D) at 183 H to 184 H, that a final payment certificate is treated as a liquid document, since it is issued by the employer’s agent, with the consequence that the employer is in the same position it would have been if it had itself signed an acknowledgement of debt in favour of the contractor.

Relying further on the Randcon case (at 186 G to 188 G) the learned Judge held that the similar reasoning applied to interim certificates. “The certificates thus embody an obligation on the part of the employer to pay the amount contained therein and give rise to a new course of action subject to the terms of the contract (14). It is regarded as an equivalent of cash (15.15) the certificates in question all form within this ambit”

Counsel for the plaintiff submitted that, that is the extent to which Courts regard the liquidity of an architect certificate in provisional sentence.

[118] The defendant relied on the decision of Thomas Construction (Pty) Ltd (In liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1986 (4) SA 510 (N), confirmed on appeal in Thomas Construction (Pty) Ltd (In liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1988 (2) SA 546 (A), where the contractor failed in an action on an interim payment certificate where the construction contractors subsequently cancelled.

[119] Referring to this case, Mr Broster submitted that, that need was decisively put to bed by Botha J. He refers to Denings J’s statement and he says this is not an accurate statement of either our Law or English Law. The true position is this, that while the contractor the remains in existence, a certificate is a liquid document for the purposes of provisional sentence, but where there is a defence to that claim, under provisional sentence proceedings, then the Court is obliged to take that defence into account and decide whether or not to grant provisional sentence.

[120] Mr Broster also referred to the case of Shelagatha Property Investments v Kellywood Homes 1995(3) SA 187 (A), he submitted that in that case the Appellant Division stated that what we have to be careful of is this:

That in Thomas Construction case, what was before the Court was a contractor who had gone insolvent claiming on a certificate in circumstances where he could not finish the contract. They said:

“We are not going to give you provisional sentence there because the owner has to go and find somebody else and to finish the building and it a costly and expensive exercise. The scenario is described as the innocent owner situation. The Shelagatha case, supra, is the other side of the coin. It is the innocent contractor situation and what the Appellate Division said in the case of an innocent contract is that there is no defence to the certificate on the parties. It does not matter that the contractor has been cancelled. The man gets provisional sentence”.

Mr Broster then referred to the Shelagatha case, supra, at page 196 B-H, where the Court stated:

“There is no defence in the present case that payment in the interim certificates will result in an overpayment. It my view, it could never have been the intention that the innocent contractor should, after cancellation loose his accord accrued rights embodied in the prior interim certificates and that he should be limited to an eventual claim for damages, with all the uncertainty and delay involved in such a claim …”

[121] Mr Broster submitted that the most important thing about that case is that the Appellate Division was faced with a situation where there was no defence before Court. The Court said that you grant provisional sentence in those circumstances, and that has always been the position. He submitted that what is on the papers before Court is not the case that fits comfortably either to Thomas Construction case, supra, or the Shelegatha Property Investment case, supra. He submitted that in the present case one has a situation where the question of cancellation is something vital to a decision in this case. That is why the defendant referred to annexure “S” into the papers dealing with the revised date and the related issues. He further submitted that one can see from the contents of this letter that there are important matters being decided in it. There is a question of the penalties which are the owner’s consent, there is also a question of an extension of time which is the contractor’s consent. He submitted that it is common cause that the two certificates that were handed up in Court, were produced as if this agreement had been concluded. The document was not signed by the parties, it was headed as a draft. Mr Broster then submitted that fundamental stance in defence is that the certificates that were issued were issued as if an agreement had been concluded when in effect it had not because the documents were not signed. It is an attack on the very right to issue the certificate. The defendant’s submission is that the principal agent could not issue the certificates until this letter had been signed.

[122] Mr Harcourt for the plaintiff submitted that there are two attacks on the liquidity of the document. The first is suggestion that the cancellation of the contract negotiated the liquidity, the second one is that the principal agent signed under a mis-apprehension. He then referred to the Thomas Construction (Pty) Ltd cases both in the original judgment and the appeal judgment where a contractor failed in an action on an interim payment certificate where the construction contract was subsequently cancelled.

[123] Mr Harcourt submitted that the plaintiff relies on the Appellant Division decision in the Shelegatha Property Investment v Kellywood Homes case, supra, he then submitted that the Thomas Construction case is distinguishable on the facts from present case and the facts of the Shelagatha case, supra, are in the main apposite to the present case.

[124] He then referred to the Rocade Developments (Pty) Ltd v Van Vuuren & Trathern (Pty) Ltd 1997 (3) SA 494 (W) at 506 F – G, where the following is stated:

“It is true that in certain cases approval, as provided in a contract, by a third party professional, may lead to a different result, but that is not the case here. In both Thomas construction (Pty) Ltd (In liquidation) v Grafton Furniture Manufactureres (Pty) Ltd, supra, and Shelagatha Property Investment CC v Kellywood Homes (Pty) Ltd, supra, the contractor claimed payment of amounts shown in interim certificates after the cancellation of the building contract. In the first case, the contractor failed and in the second case, it succeeded. The different result was due to the fact that in the first place the contract was cancelled because of the contractor’s breach while in the second case the contractor cancelled on the grounds of employer’s breach. In the Thomas case, the contract provided that the employer cancelled the contract due to a breach by contractor”.

[125] The plaintiff submitted that it was the plaintiff as contractor who cancelled the contract.

Referring to the Shelagatha’s case, supra, Mr Harcourt submitted correctly that a builder is entitled to judgment on an interim certificate where the employer is in breach of the contract. The Shelagatha’s case, supra, makes it quite clear that the cancellation will only affect the validity of the certificate if it is the contractor who is not at fault. In other words, if the contractor is the party and if the contract is thereafter cancelled, the contractor can still rely on the interim certificates. He then submitted correctly, in my view, that the very proposition of the defence that the cancellation by whichever party vitiated the liquidity of the interim certificate is wrong.

[126] He then referred to the Shelagatha case, supra, where the court stated…

“… an innocent contractor suing on a prior interim certificate after he has cancelled the contract due to the employer’s breach is in an entirely different position …” (at 195 A – F)

Mr Harcourt also referred in the following passage in the same judgment:

“In the event of an overpayment to the innocent contractor on the interim certificates, the employer will obviously be entitled to reclaim such overpayment from the contractor. I can see no inequity in that (Cf the judgment of Nienaber J in the Thomas Construction case at 520 A – C).

[127] The defendant relied on an acceptance of an alleged repudiation of the contract by the contractor. He closed the gates to the site after he had not been paid on the interim certificates. The plaintiff contends that the defendant’s acceptance of repudiation did not lawfully cancel the contract. The onus of proving repudiation is on the party who asserts it. See: Encon CC v Tadico Properties (Pty) Ltd 1991(3) SA 119 (W) at 122 A.

[128] The defendant alleged in its affidavit that the plaintiff’s failure to return to site was an abandonment of the works which constituted a repudiation of that contract which the defendant accepted on 30 August 2009. In the interdict application, founding affidavit paragraph 5, the following is stated:

“The respondent did not return to site. So, on 30 August 2009, the applicant sent a letter, a copy of which is annexed hereto marked “Z”. In terms of this letter, the applicant set out that the first respondent’s abandonment of the works constituted a repudiation which the applicant’s accepted in regard to the contract as at an end”.

Mr Harcourt submitted that he is not quite sure how if one stays on the site and lock people out, that as an abandonment. A close examination of the letter annexure “Z”, at page 224 of the papers, in second paragraph reads as follows:

“On 27 August 15:41, we received your fax in which you demanded that we immediately furnish you with proof of the availability of funds sufficient to continue with and complete the project. You are not entitled to demand the information and withhold your services pending receipt of such information. Accordingly, it appears that your intention is to continue to withhold your services. Your conduct detailed above is an abandonment of the work and is a repudiation of the contract”.

[129] What is alleged to be the abandonment is the withholding of services. But the letter, annexure “Z” is written on 30 August 2009 and the interim payment certificates had fallen due for payment on 25 August 2009. That is not what the letter of acceptance of repudiation said. In that letter, it is said that “your intention to withhold your services” is an abandonment of the works.

[130] It was submitted that one has a position where the contractor had not been paid in terms of the contract. Once he has not been paid, he does not have to work. It was submitted further that the employer of the defendant said:

“I have not paid you, you have stopped working so I am entitled to cancel the contract”.

The proposition only had to be stated for it to be rejected as wrong. Where one party to a contract, without lawful grounds indicates to the other party, in words or by conduct, a deliberate and unequivocal intention no longer to be bound by the contract, he is said to repudiate the contract. See: DataColour International (Pty) Ltd v Intermarket (Pty) Ltd 2001(2) SA 284 SCA at para 16, page 293 I. The test for repudiation is not subjective but objective. The test is accordingly whether a reasonable person would conclude that proper performance will not be forthcoming. See: DataColour International (Pty) Ltd v Intermarket (Pty) Ltd, supra, para 16.

[131] The conduct from which the inference of impending mal-performance is to be drawn, must be clear cut and unequivocal, that is not equality consistent with any other feasible explanation. The Court must super-impose its own assessment of what the innocent parties have to the guilty parties’ action should reasonable have been. In so doing, the Court must make its assessment’s taking into account all the background material and circumstances that should have been weighed with the innocent party. The purpose of an interim certificate is to furnish the contractor with funds every month during the process of the work to enable him to perform properly. The defendant’s obligation to pay interim certificates and pending his obligation to continue to execute works are conservative.

[132] In the present case, the interim payment certificates amount to R16.5 million were not paid. It is suggested by the defendant that when the contractor ceases to work after no being paid R16.5 million, that he has repudiated the contract. This conduct does not amount to repudiation.

[133] The plaintiff was accordingly not obliged to continue to perform in the light of the defendant’s failure to make payment of the interim certificate.

[134] The plaintiff accordingly had lawful grounds to withhold its services in terms of the contract.

[135] A reasonable person in the position of the defendant would not have construed such conduct as intention no longer to be bound by the contract as there was an equally consistent and feasible explanation which is that the plaintiff was reluctant to continue to perform because the defendant had failed to pay the interim certificate.

[136] In terms of the contract, the employer is entitled to cancel where the contractor has failed comply with clause 15.1 or 15.3 of the contract or has refused to comply with a contract instruction subject to clause 17.2.

[137] Clause 38 provides the grounds upon which the contractor can cancel. Clause 38.1.6 provides as follows:

“The contractor is entitled to cancel if the employer fails to pay the amounts certified in terms of clause 31.9 or 34.10”

The former is an interim payment certificate. Clause 38.2 provides that the contractor must give 10 days notice of default before that can be done.

[138] In terms of clause 15.3, the contractor is obliged to proceed with due skill, diligence, regularity and expedition to bring the practical completion, works completion and final completion into effect. It was submitted correctly in my view that the employer is permitted to cancel on the grounds of work stoppage.

[139] In terms of clause 36.2, authority to cancel is delegated to the principal agent who must act fairly and impartially.

[140] Before cancellation, the principal agent is bound to follow the procedure set out in clause 36.2 and 36.3, that is, the principal agent is required to give notice to the contractor of its default and only if the contractor remains in default for 10 days is the principal agent entitled to give notice of cancellation of the contract.

[141] However, in terms of clause 36.6, the employer has no right to cancel on the grounds where it is in material bridge of the contract itself.

[142] The defendant was in material breach of the contract, having failed to pay two interim certificates and as such the principal agent could not commence the procedure contained in clauses 36.2 and 36.3, in order to cancel the contract.

[143] The authority to cancel is delegated by the employer to the principal agent. That never entitled the defendant, the employer itself to cancel the agreement or accept repudiation as it purported to do. That is another ground on which the acceptance of the repudiation in this matter is defective.

[144] Where the building contract provides that the employer cannot cancel while in arrears of payment, and that the procedure of ten days notice of default must be given prior to cancellation, the defendant cannot objectively contend that the suspension of work alone in the absence of payment is an intention by the plaintiff to be no longer bound by the contract.

[145] No Court of law can conclude that where a contractor has not been paid on his monthly certificate, if he then stops work the he intends to repudiate the contract.

[146] Mr Harcourt submitted that the Thomas Construction case, supra, is also distinguishable from this case on another ground. In the Thomas Construction case, supra, the contractor was not at fault, that is why he could not collect on the interim payment certificate before cancellation. In the contract in that case, there was provision for the issue of a further certificates of cancellation. In this case, there is a specific provision that where there is cancellation by the contractor, that certificate can still be issued by the principal agent. In terms of clause 38.5.7 of the current JPCC contract, the principal agent must continue to issue certificates for work and material after cancellation. In the Thomas Construction case, supra, the Court provided to the contrary.

[147] The present contract contemplates the continued issue of interim payment certificates despite cancellation and by necessary implication, continued payment. That in turn, necessary implies that payments continued to be recovered by the legal process in particular, provisional sentence.

Bad faith

[148] In the answering affidavit, the defendant has introduced as part of a defence allegation of bad faith by the plaintiff. In order to determine whether this defence must succeed, one must look at how the allegations of bad faith are stated in the affidavit. In the interdict application, Mr Witthuhn said there was bad faith. The argument is put forward that Mr Witthuhn can interfere with the contractor by paying the subcontractors directly and this is said in paragraph 5(i) page 5 of the affidavit as follows:

“My fear since 26 August 2009 has been that the applicants would end up paying twice in order to complete the contract. I should explain that any payment to the first respondent which is followed by its liquidation would mean that the subcontractors working on the site are not paid. Lucas Liviero’s refusal to allow the applicant to pay the sub-contractors directly demonstrated a lack of bona fides on his part and is the course of this application.”

[149] Mr Harcourt submitted correctly that, there are a number of flaws in that argument. The first flaw is what has already been pointed out in this application, namely, that before the plaintiff can be paid, it must give security to the defendant. If there is any amount which becomes repayable, then there is security for it from a financial institution. The second is a factual problem. There are stringent allegations and counter allegations that the plaintiff always knew that the defendant had the money to pay what is due. In this regard, the plaintiff makes it clear that they were concerned about money. There might have been a facility with Nedbank but, Nedbank had to approve before draws were given. There was good reason to be concerned that the defendant did not have the immediately available funds to pay on the certificate. That is dealt within the context of the other complain that Mr Liviero went to the press. It is not clear how they had the papers to go to the press, but that was the case which was made. The explanation is given as to the concern about the funds being available and in the affidavit Mr Liviero explains both with regards to the questions of funds being available and as to how the press came to know of the matter, as follows:

In paragraph 26, page 57 in the provisional sentence proceedings:

1. “On 27 August 2009, that is the day after the plaintiff should have been and was not paid, the plaintiff released a media statement which Mr Witthuhn characterised as waging war on the defendant, presumably in support of the allegations of bad faith.

2. That statement is misleading rhetoric.

3. On 21 August 2009, the Architects had walked off the site because professional fees were unpaid.

4. By 25 August 2009, some of the defendant’s direct contractors had left the site because they had not been paid.

5. This set the sub-contractors, the workmen and the local community abuse with gossip as to whether the defendant was in financial difficulties. Then it goes on to say that a press statement was released”.

[150] Mr Harcourt then submitted that the great trouble was that they were going to apply to put further affidavits which is usually impermissible to deal with the allegations made in this replying affidavit. Those allegations are not even referred to, so they must be taken to be accepted. He submitted that with respect, the Architects had left the site because they had not been paid five days earlier, that is obviously good cause for concern as to whether the money is available. The suggestion that the plaintiff knew that there were funds available because they were paid into the defendant’s Attorney’s trust account are not correct in the sequence and chronology of the events because if one goes to the application for interdict, one will see that first of all that the application was launched on 15 September 2009. In the interdict application at page 262, and 264, there is a request on 13 September 2009, annexure “JJ” and annexure “KK”, a request to pay the sub-contractor’s directly. The cancellation of the contract was on 10 September 2009, on 13 September 2009, two days before the application was brought, there is a letter by the defendant’s attorney’s requesting the plaintiff to agree to pay subcontractors directly. On 14 September 2009, the day before the application was launched, it was then said for the first time that:

“We hold R17.5 million in trust. That application was served formally at 16h00 that day. In fact, service was only effected on 15 September 2009, at some time at 8h00. The suggestion that because that money was paid into the trust account, was an assurance to the plaintiff of the solvency, not solvency so much as to the ready cash or cash flow of the defendant, does not take the matter any further”.

[151] In this regard we have a situation where Mr Witthuhn does not dispute that the defendant’s direct contractors had walked off site on or about 25 August 2009, the day they were due to be paid. On 21 August 2009, the Architects walked off site.

[152] It is explained in the provisional sentence proceedings in the replying affidavit at paragraph 35, page 63 that although Nedbank had given a facility that advances and disbursements would only be made as and when Nedbank was satisfied as is usually the case with building loans, sufficient work had been done to the added value to the property.

[153] With regard to the sub-contractors, the suggestion is that there is bad faith on the part of Mr Liviero because he would not agree to the sub-contractors being paid directly. In the replying affidavit in the provisional sentence proceedings, that is dealt with in detail in paragraph 17 at page 48. In paragraph 17, it says:

“I annex hereto ‘LL36” a copy of the plaintiff’s standard form subcontract. As it is quite usual throughout the construction industry:-

3. The plaintiff is not obliged to pay its subcontractors until it has been paid itself;

2. Where retention monies are retained by the employer, then that is deducted pro-rata and only paid on release to the plaintiff;

2. Where the cause of delay leading to penalties is the responsibility of sub-contractors, then the penalty (or part) can be passed to subcontractors (and it sends to reason that as often as not key subcontractors e.g. electricians and plumbers) can be the direct cause of delays in project progress”.

[154] Thus what was certified as the value of the work done by the sub-contractors, by the Principal Agent in a payment certificate is not necessarily the amount they were entitled to receive from the plaintiff.

[155] Further, for example often the contractor purchases material to be installed by the sub-contractors which are then deducted before payment to sub-contractors.

[156] It is further dealt with that payments were sometimes made in particular, the example is given of one set of payment of over R1 million rands to a sub-contractor called AFSAN.

[157] Mr Harcourt submitted that it is not the plaintiff’s case that it needs to justify the response to these unfounded allegations of bad faith because in law they are irrelevant but they are of such a serious nature that they cannot be left unanswered. He emphasised that these allegations of bad faith are not introduced into these proceedings by the plaintiff, they are introduced directly and deliberately by Mr Witthuhn in his affidavit opposing provisional sentence. If one goes to provisional sentence, proceedings at page 22 paragraph 10, he said the following:

“In the interdict proceedings, I had deposed to the founding affidavit and I have set out in detail why it is that the plaintiff is not entitled to payment in term of certificates in paragraphs 53 to 57. In addition, I set out in detail how the contract came to be cancelled and I draw attention to what I have described in paragraph 5 of my founding affidavit, is that allegation of bad faith which the defendant made against the plaintiff.”

He goes on to say that he incorporates that affidavit in these proceedings. In the further affidavit, he goes on yet again to refer to these allegations when he says at page 9 in the application at paragraph 20 dealing with the draw down. He said: “These facts I submit, demonstrate a lack of good faith”. It is the defendant who makes these allegations of bad faith as part of its defence to these proceedings. It was submitted by Harcourt, correctly in my view that, if the liquid document arises out of some illegal consideration or what is in use by fraud, that is a defence, but like any other, must be proved in a provisional sentence matter on a balance of probabilities. However, “bad faith” or lack of bona fides, which is not fraud, is not a defence to provisional sentence or for that matter another contractual claim and there is no accepted doli generalis in South African Law.

See: Brisley v Drosky 2002 (4) SA 1 (SCA) at para 11 – 34 page 12 to 19; Bakhuizen v Napier 2007 (5) 323 (CC) at paras 28 – 30 page 333 – 334; Bank of Lisbon v Dionelas 1988 (3) SA 58 (A).

[158] The allegations made by the defendant in the interdict application which it adopts as its defence in the provisional sentence proceedings, do not disclose a defence. It is clear from the above that the defendant did not discharged the onus to prove such facts at the level of provisional sentence.

[159] It is therefore clear that no defence can be raised in provisional sentence merely on generalised allegations. In this case the highly subjective allegations of bad faith. The plaintiff has rejected those allegations of bad faith on the basis that they are legally not a defence. This is correct in my view.

[160] In the circumstances, I find that the allegations of bad faith as alleged by the defendants cannot constitute a defence to provisional sentence in those proceedings.

[161] It has been pointed out that, where as in the present case, the plaintiff’s sues for provisional sentence, on a liquid document, the Court will ordinarily grant provisional sentence unless the defendant produces such counter proof as it would satisfy the Court that the probability of success in the principal case is against the plaintiff. It is also trite that the onus of proving this is on the defendant and such onus should be discharged on the preponderance of probabilities. In my view, the defendant has failed to discharged the necessary onus in respect of both provisional sentence matters. It is apparent from the information before this Court that the plaintiff in this case sues for provisional sentence on liquid documents. That is not disputed by the defendants.

[162] Having considered all the information in this regard, I am satisfied that the defendants have failed to discharge the necessary onus and therefore provisional sentence should be granted in this matter, in respect of both liquid documents.

Interdict Application

[163] In terms of paragraph 2(a) of the interdict application, the applicant sought order, that the first respondent is interdicted and restrained from claiming payment in terms of the guarantees issued by the second respondent, under guarantee number “C08/30446 and C08/30448” dated 4 June 2009. In terms of paragraph 2(b) of the Notice of Motion, the applicant sought an order that in the event of any respondent’s opposing relief sought, the costs of the application be paid by such respondents jointly and severally.

[164] It is common cause that at the same time, when the applicant instituted the provisional sentence proceedings, it gave notice to the defendant that it proposed to claim the very same amounts reflected in the certificates from Lombard Insurance Company which had issued a payment guarantee. Before that notice expired and on the same day on which the provisional sentence proceedings were instituted, on 14 September 2009, the defendant launched proceedings to interdict the plaintiff from presenting the certificate to Lombard Insurance Company for payment. That application was made under case number 7934/2009 and came before Court on 15 September 2009. An order was taken by consent which had the practical effect of consolidating the two provisional sentence actions with the interdict proceedings. The order provided that all three matters be heard on the opposed roll on 4 November 2009. At the same time, the plaintiff gave the defendant an undertaking not to present the guarantee pending the determination of the provisional sentence proceedings. The order and the undertaking are annexed to the answering affidavit in the provisional sentence proceedings as annexures “B” and “C” respectively.

[165] Mr Harcourt contended that in the interdict application, there is no issue between the parties. The order made provided for the service, the service of papers in paragraphs 2 and 3 in the application and in terms of paragraph 4, the provisions are made for the filling of processes in the provisional sentence proceedings when the costs were reserved. Mr Harcourt submitted that the application was not opposed and it had not been considered at that time. Mr Harcourt has contended that once the undertaking had been given the application was redundant. It was not opposed. As there is no opposition because the costs were sought in the event of opposition only, the defendant as applicants in that application did not claim an order for costs because it did not go on. According to Mr Harcourt, the only reason why this application is dealt with is because of the manner in which the defendant has chosen to say he is going to use this affidavit in the interdict proceedings as his defence in the provisional sentence matter, and he specifically referred to the allegations of bad faith as his defence in the provisional sentence proceedings, that case is a non-issue.

[166] Mr Broster submitted that they came to Court, they sought an urgent relief and they were not permitted to go and take it. They, in fact, were met with the opposition. Counsel for the plaintiff in provisional sentence proceedings and his instructing Attorney came to Court and said to them that they must not proceed with the application because they will give them an undertaking. He submitted that, that is the customary way of dealing with an urgent application. The reason for dealing with it in that way is that if one cannot burden the Court with an argument about interim relief by giving undertakings one does so but it does not dispose of the application and it is done for convenience. Mr Broster submitted that the giving of an undertaking by the opposing party does not mean that the applicant is abandoning the relief sought in the application. He submitted further that one cannot offer an undertaking and then immediately thereafter say, because he was given an undertaking, the application is non-issue or that the applicant is not entitled to any costs because the respondent was not opposing.

[167] The fact that in the interdict application and the actions were placed on the opposed roll, and the parties given dates within which to file affidavits, does not necessarily means that it was opposed. No affidavit was filed, dealing with the allegations as set out in the interdict application. The affidavit which was filed was not an opposing affidavit.

[168] In the light of the findings which the Court has made in the provisional sentence proceedings, there is really no need to deal separately with the issues raised in the application for an interdict. Those issues have been dealt with in the provisional sentence proceedings. The interdict application should be dismissed with no order as to costs.

[169] In the result, I am satisfied that the plaintiff has made out the case for the granting of provisional sentence in respect of both Cases No.7802/2009 and 7803/2009.

[170] In the result, the following order is made:

1. Provisional sentence is granted in the amounts set out below.

1. R1 053 261,86 (certificate 19) in Case No. 7802/2009

2. R16 517 366,35 (certificate no.23) in Case No. 7803/2009

2. The defendant is ordered to pay the costs in respect of both matters, such costs to include the costs of two Counsels where employed.

(3) The interdict application under Case No.7434/2009 is dismissed.

(4) No costs order is made in the interdict application.

__________________________________

SISHI J

JUDGE OF THE KWAZULU-NATAL

HIGH COURT – DURBAN

Dates of hearing : 04 November 2009 and

02 December 2009

Date of delivery : 27 August 2010

Plaintiff’s Counsel : AWM HARCOURT, SC with

L. K. OLSEN

Instructed by : Von Klemperers

234 Hoosen Haffejee Street

PIETERMARITZBURG

Ref: Mr J Von Klemperer

Defendant’s Counsel : L. B. BROSTER, SC, with

A. M. ANNANDALE

Instructed by : Larson Falconer Inc

C/O Mason Incorporated

Third Floor

Fedsure House

251 Church Street

PIETERMARITZBURG

Ref: PK Coetzee/15/L045/007

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