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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

Case no: 2165/19

REPORTABLE:  NO/YES

OF INTEREST TO OTHER JUDGES: NO/YES

REVISED.

DATE 23/12/2024

SIGNATURE N V KHUMALO J

 

In the matter between:

 

INYATSI CONSTRUCTION S A LIMITED                                                      Applicant

 

and

 

THE NATIONAL DEPARTMENT OF PUBLIC WORKS                     1^ST Respondent

 

AND SOMAMA CONSTRUCTION CC                                               2^ND Respondent

          

This Judgment was handed down electronically by circulation to the parties’ representatives by email. The date and time of hand-down is deemed to be 23 December 2024.

 

JUDGMENT

N V KHUMALO J

 

Introduction

 

[1]      The Applicant in this matter seeks an order against the 1^st Respondent, the National Department of Public Works, for the payment of the amount of R5,982,785.19 (Five Million Nine Hundred Eighty-two Thousand, Seven Hundred and Eighty-five Rand and Nineteen Cents), payable in terms of an issued and certified Final Certificate Payment (“FCP”) no 30 dated 9 January 2018, which became due and payable on 30 January 2018, together with the contractual default interest rate applicable as determined by the Minister of Finance. 

 

The Parties

 

[2]      The Applicant is Inyatsi Construction (South Africa) Ltd, a company duly incorporated in accordance with the company laws of South Africa. The 1^st Respondent is the National Department of Public Works, Eastern Cape, a national department as contemplated in terms of Schedule 1 of the Public Service Act 1994 (Proclamation 103 of 1994) read with section 239 of the Constitution 108 of 1996 (“the Constitution”).

 

[3]      The 2^nd Respondent is Somama Construction CC, a close corporation duly incorporated in accordance with the laws of South Africa. The Applicant and 2^nd Respondent are a Joint Venture which came into being pursuant to a written agreement concluded between them on 2 September 2011 and amended on 8 February 2012. Therefore, for the purposes of this Application, the Applicant and the 2^nd Respondent will be together referred to as the “Joint Venture”.

 

Background Facts

 

[4]      The Applicant is, on behalf of the Joint Venture, seeking an order against the 1^st Respondent for the payment of the amount in the Final Payment Certificate.

 

[5]      On 8 November 2011, the 1^st Respondent awarded a tender to the Joint Venture under tender no: 046573 and contract no: MTUNMU/1 with reference no: 19/2/4/2/2/6958 concluded between the parties (that is the Joint Venture and the 1^st Respondent) in respect of a heritage upgrade of the Nelson Mandela Museum project. The initial sum of the contract was set at an approximate value of R32 347 824.72 (Thirty-Two Million Three Hundred and Forty-Seven Thousand Eight Hundred and Twenty-Four Rand and Seventy-Two Cents), inclusive of 14 % Vat subject to adjustment.

 

[6]      The agreement comprised of several documents to the tender, inter alia, the Notice and Invitation to Tender, Letter of Acceptance, Offer and Acceptance and the contract data JBCC Principal Building Agreement (Edition 4.1 March 2005) the JBCC Series 2000 which governed and formed the basis of the contract. The JBCC Principal Agreement comprised of inter alia, the following terms:

 

1.     The JBCC principal building agreement would be applicable to the contract between the Joint Venture and the 1^st Respondent;

 

2.  The Principal Agent appointed to act as an agent of the First Respondent is Impendulo Architects (Pty) Ltd;

 

3.  The initial contract price sum was R 32,347,824.72 (Thirty-Two Million Three Hundred and Forty-Seven Thousand Eight Hundred and Twenty-Four Rand Seventy-Two Cents) inclusive of 14% VAT subject to adjustments per what was reflected on the works order, and the Bills of Quantities Document;

 

4.  The Joint Venture was appointed to construct the upgrade of the Nelson Mandela Museum situated at the corner of Nelson Mandela Drive and Owen Street Mthatha;

 

5.  Clause 34.0 of the JBCC as amended by the state clause and the contract regulated the final account payment thereof together with interests thereon as provided in the annexures;

 

6.     The Principal Agent would issue the Final Payment Certificate within 7 (seven) calendar days of being advised that the final account has been accepted, though not before the issue of the Certificate of Final Completion.

 

7.     The 1^st Respondent would pay the Joint Venture the amount certified in the Final Payment Certificate within 21 days of the date of issue of the Final Payment Certificate.

 

[7]      The Joint Venture commenced with the construction work on 8 November 2011, which was the commencement date in accordance with the contract, and duly complied with all its obligations as they arose from the terms of the project.

 

[8]      On 5 December 2014, Impendulo Architectures (Pty) Ltd (“the Principal Agent”) furnished the Joint Venture with the Certificate of Practical Completion.

 

[9]      The Joint Venture received the Certificate of Works Completion from the Principal Agent on 8 February 2016. On 24 May 2017 the Certificate of Final Completion was received from the Principal Agent.

 

[10]    The Principal Agent issued a Final Payment Certificate owed to the Joint Venture in terms of the provisions of the contract, On 9 January 2018, which is due within 21 calendar days.

 

[11]    Despite the demand having been made on 3 October 2018, the 1^st Respondent failed to make payment on the Final Payment Certificate. In March 2019, the Applicant launched an application on behalf of the Joint Venture claiming payment of the issued Final Payment Certificate. The Applicant was of the opinion that it is entitled to pursue legal proceedings on behalf of the Joint venture in terms of clause 5.4 of the Joint Venture. It cited itself as the 1^st Applicant and 2^nd Respondent as the 2^nd Applicant.

 

[12]     Clause 5.4 of the Joint Venture reads:

 

“It is agreed that INYATSI will be responsible for the accounting, secretarial, legal and other administrative work required by the Joint Venture. A fee of 1.00% of the contract sum will be paid for this service.”

 

[13]    The 1^st Respondent did not agree with the interpretation of clause 5.4, as a result, raised various points in limine. One of them included a non-joinder, which led to the Applicant instituting a joinder application to join Somma as the 2^nd Respondent and filing a supplementary affidavit. The main Application was enrolled for hearing on 15 May 2023.

 

Issues Arising

 

[14]    Whether the Final Payment Certificate constitute a debt in terms of Institution of Legal Proceedings Against Certain State Organs Act 40 of 2002, or a liquid document?

 

Legal framework on Tenders

 

[15]    An act of issuing tenders by the State in South African law is regarded as an administrative action,[1] however, once the tender is processed, and pursuant to the parties being  awarded  the tender, the parties enter into a contract which governs their obligations towards one another.[2] A contract as such, is an agreement entered into between two or more parties to create a legal obligation or obligations, and as a result it is binding and reciprocal.[3]

 

[16]    Hence the court in Mohabed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd[4]  highlighted the importance of contractual obligations and stated that:

 

“The privity and sanctity of contract entails that contractual obligations must be honoured when the parties have entered into the contractual agreement freely and voluntarily. ...”[5]

 

[17]    In essence, the doctrine of the privity and sanctity of contracts requires that the parties to the contract honour the obligations of the contract, as long as the contract is entered into feely and voluntarily.[6] It is only where a party demonstrates that a contract is prejudicial due to fraud or unreasonableness that there can be a deviation from honouring the terms of the contract.[7]

 

[18]    In cases where an agreement is entered into between a contractor in the building or engineering construction industries and an employer, such contract is referred to as a building and engineering contract, and it is  governed by the Joint Building Contracts Committee (JBCC) which regulates the relationship between the employer, the contractor and the Principal Agent.[8] The contract exists where one party called a builder, or a contractor agrees to build or perform engineering work for another. [9]

 

[19]    During the building and engineering contract, the employer appoints an architect or an engineer who acts as the employer’s agent for specific purposes.[10] In terms of the Joint Building Contracts Committee JBCC Series 2000, the Principal Agent issues payment certificates, these certificates include amongst others, the Final Payment Certificate which is issued at the conclusion of work and may be regarded as final certificate for payment.[11]

 

Analysis: Whether the claim for the settlement of a Final Payment Certificate constitute a debt in terms of the Institution of Legal Proceedings Against Certain Organs of State Act?

 

[20]    The 1^st Respondent raises a point in limine that there is the absence of consent to the legal proceedings from its side, on the ground that the 1^st Respondent was not notified about the application in terms of section 3 of the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002 (the Act), and since this claim constitute a debt, the application is not properly brought before the court.

 

[21]    Furthermore, the 1^st Respondent submits that the Applicant did not make any demand in terms of the provision of the Act. The Applicant only made reference to an email which referred to clause 31.9 of the main agreement in terms of which the employer is to pay a contractor within 21 days of the calendar. According to the 1^st Respondent, the email did not constitute a demand for payment, therefore in the premises of the aforesaid, the Applicant is not entitled to relief under this application.

 

[22]    In terms of the Act debt is defined as:[12]

“Any debts arising from any cause of action-

(a) which arises from delictual, contractual or any other liability, including a cause of action which relates to or arises from any—

(i)act performed under or in terms of any law; or

(ii)omission to do anything which should have been done under or in terms of any law; and

 (b) for which an organ of state is liable for payment of damages.”[13]

 

[23]    To establish whether a claim is a debt in terms of the Act, the court in Director General Department of Public works v Kovac Investments[14] held that there are two legs to the enquiry of debt in terms of the Act. One leg requires that a debt must arise from a contractual, delictual or any other liabilities, the other is that it must render the state organ liable for damages.

 

[24]    The court further held that if a claim is for specific performance, then it does not constitute debt on the basis that the claim is stemming from a contract entered between the parties, not a claim for damages arising from breach of contract.[15]

 

[25]    The court in such claims therefore needs to apply the two legs of the enquiry to establish whether a claim constitute a debt in terms of the Act. The court must enquire into whether there has been a breach of contract; whether there is a liability for a specific performance, or whether there is a liability for payment of damages arising from the contract, and whether the state organ is liable. If the court finds that there is a claim for specific performance, the claim will not constitute a debt in terms of the Act.

 

[26]    This application does not constitute a debt in terms of the Act as the 1^st Respondent argues. The application is based on specific performance, which warrants performance from the 1^st Respondent under the contractual obligations. Furthermore, since the claim does not constitute debt in terms of the Act, there is no basis or ground to issue a demand or acquire a consent from the 1^st Respondent before a relief is sought.[16]

 

Whether the Final Payment Certificate constitute a Liquid Document?

[27]    Applicant contends that the status of the Final Payment Certificate is equivalent to that of an acknowledgement of debt and a liquid document. It is therefore required that the 1^st Respondent effect the payment of the Final Payment Certificate issued on 9 January 2018 by the 1^st Respondent‘s Principal Agent. The amount of the Final Payment Certificate should have been effected into the Joint Venture’s bank account which was opened nineteen (19) months after the issue of the Final Payment Certificate.

 

[28]    The court in Randcon (Natal) (Pty) Ltd v Florida Twin Estates Ltd[17] which is an authority in terms of the certificates issued by the Principal Agents who act on behalf of employers, held that: “the issued certificates constitute liquid documents on the basis that they are issued upon a proper construction of a contract.”

 

[29]    The definition of a liquid document was laid down in Twee Jonge Gezellen (Pty) Ltd v Land and Agricultural Development Bank of SA,[18] the court held that:

“In principle, however, a document is liquid if it demonstrates, by its terms, an unconditional acknowledgement of indebtedness in a fixed or ascertainable amount of money due to the plaintiff.  Many different sorts of documents have been found to qualify as “liquid” in terms of this definition and therefore sufficient to found provisional sentence. They include acknowledgments of debt, mortgage bonds, covering bonds, negotiable instruments, foreign court orders and architects’ progress certificates.”[19]

 

[30]     Notably, the Final Payment Certificate is considered by our courts as an acknowledgement of debt as rightly reflected by the Applicant, pointing out that in Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture[20], the court, with reference to Ocean Diners (Pty) Ltd v Golden Hill Construction CC[21], held that:

 

“[27] … A final payment certificate had to be treated as a liquid document because it was issued by the employer's agent, with the consequence that the employer was in the same position it would have been in if it had itself signed an acknowledgment of debt in favour of the contractor. Relying further on the Randcon case (at 186G 188G), the learned judge held that similar reasoning applied to interim certificates. The certificate thus embodies an obligation on the part of the employer to pay the amount contained therein and gives rise to a new cause of action subject to the terms of the contract. It is regarded as the equivalent of cash. The certificates in question all fall within this ambit.

 

[28] Stocks held three liquid documents, the equivalent of acknowledgements of debt. It could have proceeded to obtain provisional sentence on them but chose to apply for summary judgment.”

 

[31]    The Final Payment Certificate No. 30 confirmed and certified by the 1^st Respondent’s Principal Agent, is equivalent to an acknowledgment of debt by the 1^st Respondent. In circumstances where the 1^st Respondent as the employer fails or refuses to pay an authorized and correctly issued Final Payment Certificate, the Applicant as the contractor has remedies in law to enforce payment.[22] Some of the remedies include specific performance[23] and provisional sentences[24] which enforces fulfilment of obligations on the defaulting party.

 

[32]    The onus to prove the probabilities of the case where an Applicant is in possession of a liquid document lies with the Respondent, the Twee Jonge Gezellen case further held that:

 

“But a defendant who relies on a defence which goes beyond the liquid document is required to produce sufficient proof of that defence to satisfy the court that the probability of success in the principal case is against the plaintiff before provisional sentence can be refused. If there is no balance of probabilities either way with regard to the principal case, the court will grant provisional sentence. It follows that if there is a balance in favour of the plaintiff, provisional sentence will also be granted. There is no closed list of defences on which a defendant can rely. Examples in practice of defences going behind the liquid document are numerous. They include the defence: that the plaintiff never advanced the amount claimed; that the liquid document was tainted with illegality; or that the document had been obtained by fraud.”[25]

 

[33]    The Final Payment Certificate issued and certified by the 1^st Respondent’s Principal Agent on the 9 January 2018, under the authority of the 1^st Respondent and in terms of the contract serves as a liquid document. The legal position in that instance is that where a person is armed with a liquid document, he is ordinarily entitled to a provisional sentence thereon.[26] The 1^st Respondent failed to prove on a balance of probabilities against the authenticity of the certificate or any sufficient proof that the claim lacked chances of success.

 

Clause 34.10 of the JBCC agreement between the parties  

 

[34]    The basis of this application is founded on the payment of the Final Payment Certificate which was issued by the 1^st Respondent’s Principal Agent on the 9 January 2018. Clause 34.10 of the JBCC as amended by the state clause and the contract regulates the payment of the final account, together with interests thereon. The express words of clause 34.10 are that:

 

“The employer shall pay the contractor the amount certified for payment in the Final Payment Certificate within seven (7) calendar days of the date of issue of the Final Payment Certificate.”

 

[35]    In terms of the contract between the parties, the 1^st Respondent’s Principal Agent, acting under the authority of the 1^st Respondent, issued some 29 Interim Certificates before, and payment was effected in terms of the agreement issued and the certificates. Later, the Principal Agent issued a Final Payment Certificate which is still outstanding, due to failure by the 1^st Respondent to effect a payment. The Final Payment Certificate has attracted contractual interest.

 

[36]    The agreed terms of the contract according to clause 34.10, states unequivocally that the amount of the Final Payment Certificate shall be paid to the contractor within seven (7) days of the date of the issue of the Final Payment Certificate.

 

[37]    The 1^st Respondent contends that it made two payments due to the arbitration proceedings that took place between the 1^st Respondent and the 2^nd Respondent during April 2017. The sum of R1 652 391,05 (One Million Six Hundred and Fifty-two Thousand Three Hundred and Nighty-one Rand and Five cents) in total was paid on 1 December 2018 and 2 March 2019 to the Second Respondent respectively. Thus, the amount in respect of the main application should be subtracted from the arbitration award.

 

[38]    The Applicant contends that it was not made aware of the arbitration proceedings. The 1^st Respondent has not proved the payment of the arbitration award and that the payment is not recorded in the Interim Certificates. The alleged payment was not made in terms of the contract awarded to the Joint Venture in accordance with the Final Payment Certificate issued with reference to clause 34 by the 1^st Respondent ‘s Principal Agent.

 

[39]    The Applicant’s claim is for payment of the outstanding Final Payment Certificate. The arbitration proceedings and payment made by the 1^st Respondent as a result of the arbitration proceedings do not form part of the proceedings in casu on the basis that the 1^st Respondent does not indicate any issued certificate for such a payment.

 

Conclusion

[40]    Considering the circumstances of the matter, the 1^st Respondent appointed the Principal Agent to act on its behalf, it bound itself through the agency of the Principal Agent to perform under the obligations of the contract and make payments upon the issue of the certificates.

 

[41]    The Applicant commenced with the project and fulfilled the terms of the obligations, which led to the issue of interim certificates which were paid, except for the Final Payment Certificate issued on the 9 January 2018.

 

[42]    The 1^st Respondent on the other hand, failed to fulfil its contractual obligations in terms of the JBCC Contract, by failing to timeously effect payment of the Final Payment certificate to the Joint Venture which also attracted contractual default interest.

 

[43]    It is therefore just that the 1^st Respondent fulfil its contractual obligations and effect the payment of the Final Payment Certificate, including the contractual default interest as calculated by the Minister of Finance.

 

[44]    Under the circumstances, the following order is made:

 

1.    The 1^st Respondent is to pay the amount of R5,982,785.19 (Five Million Nine Hundred Eighty-two Thousand, Seven Hundred and Eighty-five Rand and Nineteen Cents) in terms of the issued and certified Final Payment Certificate no 30 dated 9 January 2018, together with the contractual default interest rate applicable, as determined by the Minister of Finance.

 

2.    The 1^st Respondent to pay the costs.

 

 

N V KHUMALO J

JUDGE OF THE HIGH COURT

GAUTENG DIVISION

For Applicant:	Adv A J Gleddining
Instructed by:	C  D De Villiers
	Email: caroline@cdvlaw.co.za; theresa@cdlaw.co.za
For 1st Respondent:	Adv S Bofilatos SC
Instructed by:	The State Attorney
	Email: sonwabiso@gmail.co.za

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