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NORTH WEST HIGH COURT

MAFIKENG

CA NO.: 1201/10

In the matter between:

KHASU ENGINEERING (PTY) LTD …...............................................................APPLICANT

and

THE NALEDI LOCAL MUNICIPALITY …...............................................1^ST RESPONDENT

THE MEMBER OF THE EXECUTIVE COUNCIL

OF THE NORTH WEST PROVINCE DESIGNATED

BY THE PREMIER TO BE RESPONSIBLE FOR

HOUSING MATTERS OR HUMAN SETTLEMENTS ….........................2^ND RESPONDENT

THE HEAD OF DEPARTMENT OF THE NORTH

WEST PROVINCE FOR HOUSING OR HUMAN

SETTLEMENTS …..................................................................................3^RD RESPONDENT

DATE OF HEARING : 02 SEPTEMBER 2010

DATE OF JUDGMENT : 30 SEPTEMBER 2010

COUNSEL FOR THE APPLICANT : ADV J H F PISTOR SC WITH HIM ADV H J SCHOLTZ

COUNSEL FOR THE 1^ST RESPONDENT : ADV F W A DANZFUSS SC WITH HIM ADV J G GILLILAND

JUDGMENT

LANDMAN J:

[1] Khasu Engineering (Pty) Ltd the applicant, seeks an order compelling the Naledi Local Municipality (Naledi) to pay to it R6 230 200.00 and R753 809.74. The claim for these payments arise out of a contract to erect low cost housing at Vryburg concluded between the applicant and Naledi on 11 April 2008 (the first contract).

[2] It is unnecessary to deal with the circumstances which led to the parties entering into a revised contract (the second contract) on 16 March 2010. Mr Pistor SC (who with Mr Scholtz) appeared for the applicant, did not persist with the averment that the second contract was entered into under duress. The second contract relates to the same building project but it commences on the date of signature i.e. 16 March 2010. It provides for a new payment mechanism. The first contract permitted the applicant to submit drawn down or interim certificates. The second contract provides that payment is to be for work actually done.

[3] A number of points were raised on the papers. Some of them were disposed on 10 June 2010. Some other points were argued but none were abandoned when the application was next argued before me. The papers exceed a little over a thousand pages. I am of the view that the application can be decided on a narrow basis once certain assumptions have been made and I will therefore not deal with the other points.

[4] I am prepared to assume the following:

(a) That the first contract was validly entered into. That the contract in terms of which the certificates were issued i.e. the first contract was terminated by mutual consent. The effect is that neither party is taken to have been in breach of contract.

(b) That the payment certificates are what they purport to be and that these interim drawn down certificates became due and payable when the municipal employee charged with the oversight of the program countersigned them.

(c) That the debts reflected by the payment certificates survive the termination of the first contract. They have accrued and they are payable. See Shelogatha Property Investments CC v Kellywood Homes (Pty) Ltd, Shelfaerie Property Holdings CC v Midrand Shopping Centre (Pty) Ltd 1995 (3) SA 187 (A) at 195A–F which reads:

“In the present case Mr Serrurier has attempted to elevate to a general rule what was said about the nature of an interim certificate and the effect of a payment made in terms thereof in the Thomas Construction case. In so doing he has, in my view, done exactly what Botha JA warned against in the passage just referred to. The general rule contended for is that after cancellation of a building contract, regardless of the terms of the contract and who the defaulting party is, interim certificates previously issued in terms of the contract can no longer be enforced. In my view neither judgment in the Thomas Construction case provides authority for such a general rule. What was said in that case related to a claim on a prior interim certificate by a contractor whose breach had caused the cancellation of the contract and who was unable to complete the work, so that another contractor had to be engaged to do so. 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. In the former case the contractor’s right to remuneration is uncertain and can only be determined after completion of the work by another. He may eventually be found to be entitled to very little or nothing at all. In the latter case the innocent contractor is, upon cancellation, released from his obligation to finish the work and the employer has no further claim against him in this regard. The innocent contractor’s right to remuneration is not conditional upon further performance under the contract and, while subject to final adjustment, is not uncertain. The mere fact that it is subject to final adjustment does not, in my view, make the right dependent on any executory part of the contract. And I do not read either of the judgments in the Thomas Construction case as having decided that it does.

I come now to deal with the defence based on the provisions of clause 23, which provide for cancellation by the contractor in the event of the employer’s breach of contract. The clause was clearly inserted for the benefit of the contractor. It facilitates both the cancellation of the contract and the contractor’s claims for damages for breach of contract.”

[5] On these assumptions I conclude that Naledi is indebted to the applicant in the amount of R6 230 200.00 and R753 809.74. This does not mean that the applicant is entitled to the order which it seeks. I must first consider Naledi’s defence of set off.

[6] The law of set off is briefly summarized in Wille’s Principles of South African Law 9^th ed at 832:

“The four conditions for set-off to operate are that both debts must be: (i) of the same nature, (ii) liquidated, (iii) fully due, and (iv) payable by and to the same person in the same capacities.”

[7] It is Naledi’s case that the applicant was overpaid by R46 094 026.75. If the claim, as reflected in the certificates, is proven, then it should be set off against the over payment. The calculation of the overpayment is set out in Annexure “O1”. It reads:

“CALCULATIONS OF MONEY SPEND (sic) ON 419 BUILDING WORK: EXTENSION 25 VRYBURG

1. 419 Structures (Work done)- 66.23% (Extent in terms of percentages of work done)

2. Cost for the erection of a unit (completely)=R54 650.00

3. Average costs for all structures

66.23÷100 x R54 650.00= R36 194.70

A. Total cost of work done

419 Structures x R36 194.70 = R15 165 579.30

Services for Phase One and Two

Quote: R53 354 100.00

Phase One = R26 677 050.00 (Amount for services installation)

Total cost (structures & services) = R 15 165 579.30 + R26 677 050.00

= R 41 842 629.30

Amount Paid out = R87 936 656.05

Difference of amount paid and work done = R 87 936 656.05 – R 41 842 629.30

= R 46 094 026.75

Money overpaid to the Contractor = R 46 094 026.75 (Stock cost and Professional fees included. In practice a normal percentage of 5% is allowed therefore on R216 000 000.00 the amount could be R10 800 000.00)”

[8] Mr Pistor SC submits that:

(a) The onus is on Naledi to prove the overpayment.

(b) No reference is made, for example, to:

(i) by whom the alleged overpayment was calculated;

(ii) when the overpayment was made; and

(iii) a confirmatory affidavit by a person with personal knowledge of the facts since Mr Mthimunye (the town manager) took office at a fairly late stage.

(c) There is no certainty in Naledi’s papers on how much has in fact been overpaid by Naledi to applicant. No less than three different versions are offered by Naledi, viz:

(i) In Naledi’s provisional opposing affidavit the allegations is made that it overpaid the applicant in the sum of R46 094 026.75. See annexure “01”.

(ii) In annexure “08” the allegations is made that on 3 February 2010, the applicant was overpaid by the amount of R3 064 823.00. The alleged overpayment of R3 064 823.00 was not complained of because the applicant was paid more that it was entitled to, but because Naledi had not received payment of that amount from the Provincial Government and was therefore complaining that the Municipality had to pay the said amount from its own funds.

(iii) Annexure “O11” Mr Mthimanye’s letter addressed to the Head of Department on 22 February 2010 that, inter alia, states:

“3. That the overpayment to Khasu engineering amounting to R27 221 108.00 be set off against later payments at a rate of 10%.”

(d) Therefore Naledi does not know whether the alleged overpayment was R46 million currently, or R3 million on 3 February 2010, or rather R27 million on 22 February 2010. This justifies a conclusion that Naledi does not know whether there is any overpayment at all.

[9] On the other hand Mr Danzfuss SC explained that:

(a) The overpayment of R46 million as calculated on 31 May 2010 includes the overpayment of professional fees which was not included in the calculation of the overpayment of R27 million during March 2010.

(b) Building material which was on the building site has also disappeared, which affected the calculation of the overpayment.

(c) The R3 million “overpayment” represents an amount paid out of the respondents’ own funds and is not an “overpayment” such as those referred to in paragraph (a).

[10] In an affidavit, to which the applicant did not reply, Mr Mthimanye says:

“As far as the overpayments to the applicant are concerned:

34.1 The amount of R27 221 108.00 was based on a preliminary investigation during December 2009 and it did not include professional fees and material on site.

34.2 The amount of R46 094 026.75 was determined by a survey mutually conducted by the applicant and the respondent during February 2010. This amount includes the following outstanding payments to:

Professional fees: R 1 300 000.00

Subcontractors: R11 572 918.75

Material on site R 6 000 000.00

(according to Mr Christo van Niekerk).”

Mr Christo van Niekerk is the applicant’s general manager.

[11] I am satisfied that on the application of the approach in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) Naledi overpaid the applicant in the amount of R46 094 026.25. It is permissible for Naledi to set off an overpayment against claims such as these made by the applicant.

[12] Clause 4.25 of the first contract provides:

“Overpayment

If at any time, the Developer makes payment to the Contractor in an amount (sic) excess of the amount to which the Contractor is entitled –

4.25.1 The Developer shall be entitled to set-off the amount of any such overpayment against later payment due and in respect of this housing project or any other housing project.”

See also the observation in Mouton v Smith 1977 (3) SA 1 (A) at 5E:

“For the object of these provisions is to furnish the contractor with funds every month during the progress of the work to enable him to perform it properly and as expeditiously leaving any possible over- or underpayment to be adjusted in a subsequent interim certificate or ultimately in the final certificate.”

[13] Mr Pistor SC submitted that in any event the issue of the alleged overpayment does not provide a complete defence to the present claim. He submits that the second contract between the parties provides that any set off of any overpayment is limited to 10% per certificate. Consequently, at best for Naledi, it will be entitled to set off 10% of the amounts claimed.

[14] Mr Pistor SC relies, for this argument, on clause 6.5 of the second contract. Clause 6.5 reads:

“If at any time, the Developer makes payment to the Contractor in an amount in excess of which the Contractor is entitled, the Developer shall be entitled to set-off the amount of any such overpayment against later payments at a rate of 10% until payment of the practical completion certificate.”

[15] However, the applicant’s claim is not made in terms of the second contract which commenced on 18 March 2010. Clause 6.5, looks to future payments (and other overpayments which may be set off against future claims by 10% of the overpayment) and not to past overpayments and past claims.

[16] The language of clause 6.5 of the second contract is clear and unambiguous. Clause 6.5 forms part of a document which, in terms of clause 22, constitutes the entire agreement between the parties. The first contract cannot, in view of clause 22 of the second contract be read together. It may be that the written contract does not reflect the agreement between the parties as regards set off but in the absence of a claim for rectification I can do no more than give effect to the agreement.

[17] In the premises the application is dismissed with costs. The applicant is to pay the respondents’ cost, including the costs reserved on 10 June .2010. These costs are to include the costs of two counsel.

A A LANDMAN

JUDGE OF THE HIGH COURT

ATTORNEYS:

FOR THE APPLICANT : NIENABER & WISSING

FOR THE RESPONDENTS : STATE ATTORNEY

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