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

• Jurisdiction: South Africa
• Judge: Nienaber J
• Judgment Date: 05 May 1986
• Citation: 1986 (4) SA 510 (N)
• Hearing Date: 14 March 1986
• Court: Natal Provincial Division

Nienaber J:

One of the issues discussed in Crest Enterprises H (Pty) Ltd v Rycklof Beleggings (Edms) Bpk 1972 (2) SA 863 (A) is whether a claim ex contractu can survive the subsequent cancellation of the contract. In the course of his judgment HOLMES JA declared, at 870G - H:

"To sum up on this aspect, the rule in the Walker case supra is confined to cases where, prior to the rescission of a contract by one party's acceptance of the other's repudiation, there I exists a right which is accrued, due and enforceable as a cause of action independent of any executory part of the contract."

The emphasis in this case falls on the phrase:"independent of any executry part of the contract".

There are two claims against the same employer. The one is based on a certificate issued to a contractor by an engineer under one contract and the other on a certificate issued by an architect under a different contract. Shortly after they were J issued the contractor was placed in liquidation and

Nienaber J

A the two contracts were cancelled by the employer. The joint provisional liquidators in turn elected not to proceed with them. The contracts were never completed by the contractor. Someone else had to be engaged to do so. The cost of completion in the one case would exceed and in the other case would B largely absorb the amounts that were certified. The simple question is whether the joint provisional liquidators of the contractor can persist in an action on the certificates, notwithstanding these consequences. Are the claims founded on the certificates, to revert to the phraseology in the Crest Enterprises case, independent of the executory parts of the contracts in question? This is the primary issue that arises in the two matters, Nos 22/86 and 23/86, that were heard together C as a matter of convenience.

Two separate contracts were concluded between the same two parties - one being in respect of civil and concrete works relating to the employer's new factory at Canelands Township Extension No 2, and the other relating to the construction of D the administration buildings, staff facilities and outbuildings on the same site. The conditions of contract of both can be taken to be identical.

Clause 22 deals with the determination of the contract concerned by the employer. This can happen in one or both of two situations: default by the contractor (as defined) or the contractor's liquidation. Both are alleged to have occurred.

E Clause 22.3 then proceeds:

"22.3

In either of the above cases the following shall apply:

22.3.1

The employer may employ and pay a contractor or other person or persons to carry out and complete the works, and he or they may enter upon the site and use all materials, temporary buildings, plant and appliances thereon, and may purchase all materials F necessary for the purpose aforesaid;

22.3.2

............

22.3.3

............

22.3.4

Until after completion of the works under this clause no payment shall be made to the contractor under this contract: Provided that upon completion as aforesaid, and the G verification within a reasonable time of the accounts therefor, the consulting engineer shall certify the amount of expenses properly incurred by the employer, and if such amount added to the monies paid to the contractor before such determination exceeds the total amount which would have been payable on due completion, the difference shall be a debt payable to the employer by the contractor; and if the said amount added to the said monies be less than the said total amount, the difference shall H be a debt payable by the employer to the contractor."

In this case the focus fell on the last clause.

The certificate in case No 22/86 was issued on 29 October 1985. It was the fifth in a series of payment certificates. A sum of R330 767,98 was certified as "the amount now due". The I certificate in case No 23/86 was issued a few days later, on 4 November 1985. It is described as an interim certificate, instalment No 3, and concludes with the following words:

"Amount in words: Fifty nine thousand five hundred and thirty eight rand and sixty cents only and accordingly this certificate is an acknowledgement of debt by the employer to the contractor and a promise by the employer to pay the amount of this certificate to the contractor, at the contractor's address as set out above, within seven days of the date of J issue of this certificate (unless otherwise stated in the contract)."

Nienaber J

(The contracts, incidentally, do state otherwise. The relevant A period in each case is 14 days.)

Because of the differences in wording between the two certificates, the claim in matter No 22/86 was advanced by way of an application and in matter No 23/86 by way of a provisional sentence summons.

Both certificates were issued in terms of clause 25 of the B conditions of contract. Clause 25.1 provides:

"25.1

The contractor shall be entitled to receive from the consulting engineer interim certificates at intervals not greater than one calendar month, a penultimate certificate and a final certificate (as more fully set out hereunder), stating the amount due to him and to payment of such amount by the employer within the period set out in the attached schedule.

The consulting engineer shall notify the employer of the C date and amount stipulated in each certificate at the time of the issue thereof. If, after expiry of the aforementioned period, the amount so certified has not been paid to the contractor, the employer shall be liable, without prejudice to any right the contractor may have to determine his employment under this contract, to pay the contractor interest on the amount so due, calculated at a D rate of 2 per cent greater than the minimum lending rate charged by commercial banks to their clients, which interest shall accrue as from the due date for payment if the contractor has presented the certificate for payment within the period stipulated herein, or the date of presentation of the certificate by the contractor, whichever date is the later."

Clause 25.2.1 provides:

"25.2.1

The amount so due as aforesaid shall, in E respect of each monthly certificate, be a reasonable estimate:

25.2.1.1

of the total value of the work duly executed; and

25.2.1.2

of the materials and goods delivered upon the site for use in the works; assessed up to and including a date not more than seven days prior to the date of the said certificate, less the amount to be retained by the employer, as hereinafter provided, F and less any amounts previously certified under this clause: Provided that such certificate shall, subject to the provisions of clause 25.2.2, only include the value of the said materials and goods as and from such time as they are reasonably, properly and not prematurely brought upon the site, and then only if adequately stored and/or protected against G weather and other casualties."

The 8th of November 1985 was significant for two reasons: it was the day on which the employer can be taken to have given the contractor notice to perform in terms of clause 22 and it was the day upon which the application for the winding up of the contractor was lodged with the Registrar of the Supreme Court. The provisional liquidation order was granted on 12 H November 1985 which was also the date upon which the certificate in matter No 22/86 matured. The certificate in matter No 23/86 reached maturity on 18 November 1985. The 14-day period of the notice to perform expired on 22 November 1985 and on 26 November 1985, by a letter addressed to a joint provisional liquidator by the employer's attorney, the latter purported to terminate both contracts. The letter provides as I follows:

"We confirm that our clients have taken possession of the sites as at 19 November and that the remainder of the contracts have been awarded to alternative contractors with a view to their completing timeously. We further record the following:

(A)

Our clients will measure all work done and materials supplied by Thomas Construction and required for the works to date of takeover and will ensure that certificates are J issued for such work and materials.

Nienaber J

(B)

A Where work has been done but it is unacceptable to our clients, your representative on site will be advised.

(C)

As far as subcontractors are concerned, new contracts will be entered into with such subcontractors and our clients will only accept responsibility for their claims from the date of take-over.

(D)

Where items have been leased, fresh leases will be entered into with the lessors.

(E)

B All materials on site required for the works will be included in the aforesaid certificates and will be used where possible in the contracts. If, however, a third party alleges a valid right of ownership in any such materials, our clients will not dispute such claim and you are at liberty to do so. The invoice amount in respect of such materials will be deducted from certified amounts.

(F)

Plant and machinery belonging to your client will not be used and is available for removal.

(G)

C In terms of clause 22.3.4 no payment shall be made in respect of amounts certified until the contracts have been completed. Thereafter a reconciliation will be attended to as provided for in clause 22.3.4 and if any amount is due to Thomas Construction, that amount will be paid.

(H)

Every effort will be made to mitigate damage and ensure that the balance of both contracts are completed at the least possible extra cost."

D (I pause to mention that a point was made in the papers that both the initial notice to perform and the subsequent letter of cancellation were ineffectual because they were not sent by registered post - but at the hearing the point was abandoned since it transpired that all formalities were duly complied with.)

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