Thomas Construction (Pty) Ltd (In Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Corbett JA, Botha JA, Nestadt JA, Nicholas AJA and Boshoff AJA
• Judgment Date: 18 February 1988
• Citation: 1988 (2) SA 546 (A)
• Hearing Date: 16 November 1987
• Court: Appellate Division

Botha JA:

The appellant is a company in liquidation. Its joint D provisional liquidators instituted legal proceedings against the respondent in the Natal Provincial Division by means of two separate cases numbered 22/86 and 23/86 respectively. Case No 22/86 was an application on notice of motion in which the appellant sought judgment E against the respondent for payment of R330 767,98 with interest and costs. Case No 23/86 was an action for provisional sentence against the respondent in which the appellant claimed payment of R59 538,60 with interest and costs. The respondent opposed the application and defended the action. The two cases were heard together by Nienaber J, who dismissed both the application and the action, in each case F with costs. The appellant now appeals against these orders with the leave of the judge a quo.

The two cases have been conjoined in this appeal - conveniently, for the issues to be decided in both are in substance the same. What is at stake, in the broadest terms, is the right of the appellant to enforce payment of the amounts reflected as being due to it by the respondent in two interim certificates issued to it, prior to its liquidation, in terms G of two separate building contracts between the parties, in the face of a defence raised by the respondent that the contracts had been duly cancelled by the respondent after the appellant's liquidation.

The judgment of Nienaber J has been published in the Law Reports: see H Thomas Construction (Pty) Ltd (in Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1986 (4) SA 510 (N). I shall refer to it as the reported judgment. The facts which gave rise to the litigation are set forth in the reported judgment; consequently all the details thereof need not be repeated here. For convenience the facts which are relevant for the purposes of this judgment can be summarised in the form of a chronological synopsis, as follows:

1.

I Prior to its liquidation the appellant, as the contractor, was engaged upon the performance of construction and building work for the respondent, as the employer, pursuant to two separate contracts in writing between the parties. The one contract was administered J on the respondent's behalf by a consulting engineer; the other by an architect. I shall differentiate between the two contracts simply by

Botha JA

referring to the one as the 'first contract' and to A the other as 'the second contract'. Except for the references in the first contract to the consulting engineer, as opposed to the references in the second contract to the architect, the conditions of contract governing the legal relationship between the parties in both instances were the same. Two clauses of the conditions of contract are relevant: clause 22, under the heading 'Determination B by employer', and clause 25, under the heading 'Certificates and payments'. The relevant provisions of these clauses will be quoted later.

2.

On 29 October 1985 the engineer issued an interim certificate to the appellant in terms of clause 25.1 of the first contract. It certified that the 'Amount now due' by the respondent to the appellant was the sum of R330 767,98. Under clause 25. 1, read with C the schedule referred to therein, the contractor became entitled to payment of the amount stated in the certificate to be due to it within a period of 14 days after the date of issue of the certificate.

3.

On 4 November 1985 the architect issued an interim D certificate to the appellant in terms of clause 25.1 of the second contract. It certified that payment was due by the respondent to the appellant of an amount of R59 538,60. In this instance, too, under clause 25.1 and the schedule referred to in it, the contractor became entitled to payment of the amount stated to be due to it within a period of 14 days after the date of issue of the certificate.

4.

On 8 November 1985 the engineer (in respect of the E first contract) and the architect (in respect of the second contract) both gave written and registered notice to the appellant, calling upon it to proceed with the works in each case with reasonable diligence, in terms of clauses 22.1.2 and 22.1.3 of each F contract. Under the latter subclause the contractor was required to comply with the notices within 14 days, failing which the employer became entitled to terminate the contractor's employment under the contracts.

5.

Also on 8 November 1985 the application for the winding-up of the appellant was lodged with the Registrar of the Court a quo.

6.

G On 12 November 1985 a provisional liquidation order was made in respect of the appellant.

7.

On the same date, 12 November 1985, the interim certificate referred to in para 2 above matured in the sense that the 14-day period for payment by the respondent of the amount certified in it H expired; thereafter the payment was overdue.

8.

On 18 November 1985 the interim certificate referred to in para 3 above matured in the same sense as just mentioned.

9.

On 22 November 1985 the 14-day period within which the appellant was required to remedy its default, as mentioned in para 4 above, elapsed.

10.

On 26 November 1985 the respondent purported to cancel I both contracts. This was done by means of a letter addressed by the respondent's attorney to the joint provisional liquidators of the appellant in which it was recorded that the respondent regarded both contracts as terminated, inter alia on the ground of the J appellant's failure to remedy its breaches in terms of clause 22. The

Botha JA

A letter also recorded that another contractor had been appointed to complete the works and that, in terms of clause 22.3.4, no payment would be made in respect of amounts certified until the contracts had been completed. (This part of the letter is quoted in the reported judgment at 514C.)

11.

On 29 November 1985 the joint provisional liquidators B replied to the letter mentioned in the preceding paragraph in a letter written by one of them. In this letter the liquidators claimed that the contractor was entitled to be paid in respect of work which had been certified prior to the liquidation, notwithstanding the provisions of clause 22.3.4. This clause, it was C said, was invalid, because it purported 'to vary on liquidation the provisions of the contract after liquidation'. It was said also that there had been 'an accrued right to receive payment of the value of the certified work as at the date of liquidation' and that the company in liquidation was therefore 'entitled to immediate D payment of this overdue amount'. (The relevant parts of this letter are quoted in the reported judgment at 514E - H.)

12.

On 12 December 1985 the joint provisional liquidators elected not to proceed with the performance of the contracts. In a letter of that date the respondent was advised that the liquidators had received sufficient information to enable them to decide whether to E affirm or to repudiate the contracts, and the respondent was 'formally notified' that the contracts were 'terminated'. The claim for immediate payment in full in respect of certificates issued prior to the liquidation was repeated.

13.

On 18 December 1985 the appellant was finally liquidated.

14.

F In January 1986 the legal proceedings to which reference was made in the opening paragraph of this Judgment were initiated. The notice of motion in the one case, and the provisional sentence summons in the other, were both dated 7 January 1986. In the one case the cause of action relied upon was the interim certificate G issued on 29 October 1985 in respect of the first contract, and in the other it was the interim certificate issued on 4 November 1985 in respect of the second contract. The different forms of procedure adopted in the two cases are accounted for by the differences in the wording of the two certificates (see the reported judgment at 512H - 513B).

15.

H In both cases the main defence put forward in the opposing affidavits filed on behalf of the respondent was that each of the contracts had been duly cancelled by the respondent on the ground of the appellant's breach of contract.

The facts recited above, which are common cause, require further comment I in one respect. The validity or otherwise of the respondent's purported cancellation of the contracts has not been adverted to. In its opposing affidavits the respondent had made appropriate allegations of fact justifying the giving of notices to the appellant calling upon it to proceed with the works with reasonable diligence (as mentioned in para 4 above), and in regard to the appellant's failure to comply therewith, J thus laying the factual foundation for the validity of the respondent's purported

Botha JA

cancellation of the contracts (as mentioned in para 10 above). A In the replying affidavits filed on behalf of the appellant the deponent in each case stated that he did not admit the factual allegations to which I have referred, but he made no attempt to controvert them, saying merely 'I do not regard this dispute as material to the present proceedings'. In these circumstances it is not open to the appellant to challenge the existence of the facts alleged by the B respondent which entitled it to cancel the contracts. In argument before this Court counsel for the appellant correctly conceded as much. Accordingly, the validity of the respondent's cancellation of the contracts must be accepted insofar as the facts relating to the appellant's breaches of the contracts are concerned. However, counsel C for the appellant did challenge the validity of the cancellation on a different ground, which relates to the interpretation of clause 22.1.3 of the conditions of contract in each case. I shall deal with this presently.

It will be convenient at this stage to quote the...