THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 20821/2014

In the matter between:

NURCHA FINANCE COMPANY (PTY) LTD

APPELLANT

and

OUDTSHOORN MUNICIPALITY

RESPONDENT

Neutral citation:    Nurcha Finance Company (Pty) Ltd v Oudtshoorn Municipality

(20821/2014) [2016] ZASCA 28 (23 March 2016)
Coram:
Ponnan, Pillay and Petse JJA and Fourie and Tsoka AJJA
Heard:
1 March 2016
Delivered:
23 March 2016

Summary:  Undertaking to pay amounts due in terms of a building contract to third
party ─ failure to do so giving rise to claim for damages ─ claim not precluded by virtue
of subsequent cancellation of building contract.

ORDER

On appeal from: Western Cape Division of the High Court, Cape Town (Griesel J
sitting as court of first instance):
1 The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel.
2 The order of the court below is set aside and substituted by the following order:
„Judgment is granted in favour of the plaintiff as follows:
(a) The defendant is ordered to pay the plaintiff the sum of R2 692 467.43, together
with interest thereon at the rate of 15,5 per cent per annum calculated from date of
service of summons to date of final payment.
(b) The defendant is ordered to pay the plaintiff‟s costs of suit, including all reserved
costs save for those occasioned by the postponement of the matter on 12 March
2012 which are to be paid by the plaintiff, such costs, where applicable, to include
the costs of two counsel.‟
___________________________________________________________________

JUDGMENT
___________________________________________________________________

Fourie AJA (Ponnan, Pillay and Petse JJA and Tsoka AJA concurring):
[1] This appeal has its origin in an opposed application brought in the Western
Cape Division of the High Court, Cape Town, which was subsequently referred to
trial. After the exchange of pleadings the parties identified two questions of law which
they agreed to place before the trial court by way of a stated case in terms of
Uniform rule 33(4). The matter proceeded before Griesel J who ruled in favour of the
respondent, but granted the appellant leave to appeal to this court.

[2] The factual background to the appeal appears from the following agreed facts
forming part of the stated case.

[3] During 2007 the respondent, Oudtshoorn Municipality (the municipality),
awarded a tender for the construction of 663 houses (the project) to Silver Buckle
Trade (Pty) Ltd t/a Yethu Projects (Yethu).

[4] In November 2007 Yethu applied to the appellant, Nurcha Finance Company
(Pty) Ltd (Nurcha), for bridging finance to enable it to complete the project.
Consequently, during December 2007, Nurcha and Yethu concluded a bridging
finance agreement (the finance agreement).

[5] Pursuant to the conclusion of the finance agreement, Yethu issued an
irrevocable instruction to the municipality advising it that Yethu had concluded the
finance agreement with Nurcha and had ceded to Nurcha all payments payable to
Yethu by the municipality in respect of the project. Yethu further instructed the
municipality that it should „from this day forward as per the instructions of [Nurcha]‟
pay all moneys owing to Yethu in respect of the project into a nominated bank
account in the name of Yethu (the project account). The project account was the only
account into which the municipality was to pay moneys due to Yethu and this
instruction could only be varied with Nurcha‟s written consent.

[6] Pursuant to the instruction, the municipality, duly represented by its municipal
manager, gave a written undertaking in favour of Nurcha (the undertaking), in terms
of which the municipality irrevocably and unconditionally consented to the cession of
Yethu‟s rights arising out of the project to Nurcha. The municipality further consented
irrevocably and unconditionally to Yethu pledging and ceding in securitatem debiti to
Nurcha all of its rights to any moneys payable by the municipality, and it irrevocably
and unconditionally undertook, in favour of Nurcha, to pay all moneys due and
payable to Yethu into the project account exclusively.

[7] In giving the undertaking the municipality accepted the instruction and thereby
concluded an agreement with Nurcha upon the terms set out in paragraphs 5 and 6
above.

[8] The municipality had appointed Arcus Gibb (Pty) Ltd (Arcus Gibb) as project
managers for the project. Arcus Gibb, together with the municipality‟s building control
officer, were responsible for assessing and certifying the work completed on the
project by Yethu. Arcus Gibb and/or the municipality‟s building control officer would
inspect all work completed by Yethu pertaining to the project and certify work
completed during the course of the project, by issuing certified payment certificates
upon which payment was to be made by the municipality into the project account in
accordance with the undertaking.

[9] Nurcha relied upon the certified payment certificates in allowing further draw
downs and loan advances to Yethu to enable it to complete the project for the
municipality. During the period October 2007 to the end of August 2009, Arcus Gibb
and/or the municipality‟s building control officer certified that Yethu had completed
work in relation to 39 payment certificates. The municipality effected payment in
respect of 36 of the certificates into the project account, but failed to make payment
of three certificates, being certificates 7, 8 and 20, into the project account. Instead,
the municipality made payment in respect of the three certificates into a different
account held by Yethu. In particular, the municipality failed to pay the amounts of
R1 493 638.90 (certificate 7), R2 086 204.10 (certificate 8) and R635 076.49
(certificate 20) into the project account.

[10] Yethu subsequently failed to complete the project and the municipality
cancelled the contract with Yethu due to the latter‟s breach of contract. Yethu was
then placed under final liquidation by the Western Cape High Court on 14 April 2010.
The municipality appointed another contractor to complete the project. As at the date

of the stated case, Nurcha had not recovered any further payment from the insolvent
estate of Yethu.

[11] Nurcha claimed damages from the municipality for breach of contract in the
amount of R2 692 467.43, being the balance owing to Nurcha in terms of the finance
agreement, by virtue of the non-payment of certified payment certificates 7, 8 and
20.

[12] Nurcha‟s submissions, as plaintiff, were recorded as follows in the stated
case:
(a)
In terms of the agreement between Nurcha and the municipality, and on a
proper interpretation thereof, once payments had been certified, the money so
certified became due, owing and payable and had to be paid into the project
account;
(b)
The parties‟ agreement prohibited the municipality from making any payments
to Yethu into any account other than the project account, for the duration of the
project in respect of work which had been certified for payment. The municipality
breached the agreement and is liable to Nurcha for the payment of damages in the
aforesaid amount.
(c)
In any event, the municipality was aware of the cession of Yethu‟s right to
payments under the project to Nurcha and was legally bound to give effect thereto by
making payment of the amounts certified in terms of the payment certificates, to
Nurcha into the project account.

[13] The submissions of the municipality, as defendant, were recorded as follows
in the stated case:
(a)
Nurcha‟s claim is founded on the non-payment of the payment certificates into
the project account.
(b)
The payment certificates constituted claims for pre-payments on payment of
the contract sum.

(c)
Due to the cancellation of the contract between Yethu and the municipality,
Yethu could not and did not complete the project and did not fulfil its contractual
obligations in terms thereof.
(d)
Yethu accordingly lost its contractual standing to claim for payment of the
contract sum as well as all pre-payments. The payment certificates are therefore no
longer prima facie proof that amounts reflected therein are due and payable to
Yethu; and
(e)
Nurcha ipso facto lost its right to rely on non-payment of the certificates into
the project account due to the breach of the agreement between Nurcha and the
municipality, giving rise to a claim for damages.

[14] The legal issues arising from the stated case which the court a quo was
required to determine, were the following:
(a)
Is Nurcha entitled to rely on the non-payment of payment certificates 7, 8 and
20 into the project account, as a basis for its claim for damages?
(b)
If so, whether it is open to the municipality as a matter of law to dispute its
liability for payment of those payment certificates on the basis that they were not
validly issued?

[15] Finally, the parties agreed that, if the court a quo were to find in favour of
Nurcha in respect of both questions presented to it for determination, Nurcha was
entitled to judgment in terms of prayers A, B and C of its particulars of claim.

[16] The trial court answered the first question posed in the negative and the
second question accordingly fell away. In effect, the trial judge held that Nurcha was
not entitled as a matter of law to rely on the municipality‟s failure to make payment of
the amounts certified under certificates 7, 8 and 20 into the project account, as a
basis to claim damages from the municipality.

[17] In arriving at this finding the trial judge, firstly, held that the municipality and
Yethu had not agreed that the issuing of a payment certificate would be regarded as

proof of what was due and payable to Yethu under their contract. Secondly, the trial
court held that, as Nurcha derived its claim from Yethu in circumstances where
Yethu, by virtue of the cancellation of the building contract, can no longer enforce a
claim against the municipality on the basis of interim payment certificates, Nurcha is
left without a claim against the municipality.

[18] In the latter regard the court a quo relied on the decision in Thomas
Construction (Pty) Ltd (in liquidation) v Grafton Furniture Manufacturers (Pty) Ltd
1986 (4) SA 510 (N) (confirmed on appeal at 1988 (2) SA 546 (A)), in which it was
held that payment certified in an interim payment certificate is not (subject to any
contrary provision in the underlying contract between the employer and the
contractor) regarded as compensation for a completed segment of the work. It is
treated as provisional and subject to adjustment and re-adjustment in subsequent
certificates. This stems from the principle that payment ultimately depends on the
delivery of a finished product of work. Therefore, the employer who makes payment
in advance on a contract sum that is dependent upon completion of the work, does
so in the expectation that the contractor will finish the work; and the contractor who
claims an interim payment thereby confirms that he or she is ready, willing and able
to do so. From this it follows that, upon the cancellation of the underlying contract,
the employer‟s legitimate expectation of the continued performance of the work by
the contractor, is disrupted. The contractor is no longer able to complete the work
and should therefore be disqualified from insisting on payment to be made by the
employer in terms of interim payment certificates. This is so as the claim on the
interim payment certificate remains in essence a claim on the contract. Cancellation
of the contract strikes at the very foundation of the claim and therefore debars a
claim based upon the interim payment certificate. The contractor then has to look at
remedies other than the payment certificate to exact compensation for work actually
done in terms of the contract (cf BK Tooling (Edms) Bpk v Scope Precision
Engineering (Edms) Bpk 1979 (1) SA 391 (A) in which a claim for a reduced contract
price for incomplete performance under a bilateral contract was allowed on
considerations of fairness).

[19]      Counsel for the municipality, whilst contending that the trial court had
correctly answered the first question for determination in the negative, disavowed
reliance on the trial judge‟s reasoning in support of that conclusion. There is no merit
in the first ground upon which the trial court found in favour of the municipality,
namely that the parties had not agreed that the issuing of a payment certificate
would be proof of what was due and payable to Yethu under the building contract. It
is trite that interim payment certificates of the kind in question provided Yethu with a
self-standing and distinct cause of action which could be enforced without any need
for Yethu to go beyond the certificates or to rely on the underlying building contract.
See Mouton v Smith 1977 (3) SA 1 (A) at 5C-E; Thomas Construction (A) at 562E-F.
See also the analogous status of „on demand‟ guarantees, as discussed in State
Bank of India v Denel SOC Limited [2014] ZASCA 212 (3 December 2014); [2015] 2
All SA 152 (SCA).

[20] Turning to the second ground upon which the trial judge found in favour of the
municipality, counsel for the municipality, as I understood him, pinned his colours to
the mast of an adapted version of the trial judge‟s second ground. His submission
proceeded along the following lines: In claiming as it did, Nurcha implied that the
amounts certified in the payment certificates constituted moneys due and payable to
Yethu in terms of the building contract. However, by reason of the cancellation of the
building contract prior to the issue of summons, the payment certificates, at the time
of summons being issued, no longer constituted proof of indebtedness to Yethu in
terms of the building contract. Therefore, the submission continued, after the
cancellation of the building contract prior to the completion of the work, Nurcha‟s
cause of action became one based on enrichment. As Nurcha‟s particulars of claim
do not incorporate an alternative claim based on enrichment, it is not entitled to rely
on the non-payment of the payment certificates into the project account, as a basis
for its claim for damages against the municipality. In support of this submission
counsel for the municipality, as was the case with the trial court, set considerable
store by the decisions in Thomas Construction.

[21] In my view the approach of the court below, as well as the approach of the
municipality on appeal, failed to take proper account of the true nature of Nurcha‟s
cause of action. Its cause of action is not that of a contractor claiming payment for
work done under a building contract. As rightly conceded by the municipality,
Nurcha‟s cause of action is founded on the undertaking of the municipality to pay all
moneys due and payable by it to Yethu, as and when they fell due, into the project
account. Therefore Nurcha‟s claim is not based on any payment certificate as such ─
its claim is made in terms of the municipality‟s undertaking to make all payments due
and payable in terms of the building contract with Yethu, to Nurcha and not to
anyone else. Furthermore, the municipality‟s obligation to make the payments to
Nurcha arose from the acts of payment under the payment certificates (which
payments were made by the municipality prior to the cancellation of the building
contract with Yethu), and was not dependent upon the validity or ultimate status of
the payment certificates. Put differently, upon the amounts being certified as due and
payable in terms of the relevant payment certificates, the municipality was
contractually obliged to pay the amounts into the project account, and its failure to do
so, by paying same into another account, constituted a breach of contract. As
submitted on behalf of Nurcha, any claims that the municipality and Yethu may have
against each other in terms of the building contract between them, or on any other
ground, are res inter alios acta as regards the municipality‟s obligations under its
agreement with Nurcha.

[22] From the above it is immediately apparent that the facts in Thomas
Construction differ markedly from those in the instant case. In the former the court
had to consider whether a claim in terms of a (as yet unpaid) payment certificate
issued to a contractor under a building contract, survived the subsequent
cancellation of the building contract. In the instant matter there is no relationship of
contractor and employer under a building contract between Nurcha and the
municipality. As explained earlier, Nurcha‟s claim is based on an independent
agreement concluded with the municipality in terms of which the municipality
contractually undertook to pay all moneys due and payable by it to Yethu, into the
project account for the benefit of Nurcha. Payment certifcates 7, 8 and 20 certified
amounts due for payment, which were paid by the municipality prior to the

cancellation of the building contract, but payment was not made into the project
account and therefore the municipality acted in breach of the contractual undertaking
made to Nurcha.

[23] I fail to comprehend why (as submitted on behalf of the municipality) the
cancellation of the building contract between the municipality and Yethu, prior to the
issue of summons by Nurcha, resulted in the demise of Nurcha‟s claim for
contractual damages. What makes this submission even more startling, is the
concession by the municipality that, prior to the cancellation of the building contract,
it would have had no defence against Nurcha‟s claim for damages. To my mind, the
subsequent cancellation of the building contract cannot legally impact upon the
nature and extent of the obligation of the municipality vis-à-vis Nurcha and somehow
transform Nurcha‟s claim for damages to one which „has become determinable only
on the basis of enrichment‟.

[24] I understood counsel for the municipality‟s submission to be that, subsequent
to the cancellation of the building contract, any indebtedness of the municipality to
Nurcha was to be determined only on the basis of the municipality‟s indebtedness to
Yethu. Differently put, the submission is that the parties intended that, upon the
cancellation of the building contract, the municipality would only be liable to Nurcha
to the extent that the municipality may have been unjustly enriched at the expense of
Yethu.

[25] This submission, once again, fails to take proper account of the fact that
Nurcha‟s cause of action is based on the municipality‟s breach of contract vis-à-vis
Nurcha, by failing to make the payments in respect of certificates 7, 8 and 20 into the
project account, giving rise to a claim for damages arising from the breach of
contract. This cause of action arose, at the latest, upon the municipality‟s failure to
make payment thereof into the project account, before the cancellation of the
building contract between Yethu and the municipality. Whether or not the
municipality is liable to Yethu for unjustified enrichment due to the premature

cancellation of the building contract (on the BK Tooling basis or on the basis of any
of the other condictiones recognised in our law), is legally irrelevant for the
determination of Nurcha‟s claim for damages arising from the breach of a separate
contract concluded between the municipality and Nurcha.

[26] In the result I find that Nurcha is entitled to rely on the municipality‟s breach of
the agreement (ie the non-payment of the amounts certified in terms of payment
certificates 7, 8 and 20 into the project account) as a basis for its claim for damages
against the municipality. I therefore conclude that the first question of law ought to
have been answered in the affirmative.

[27] This brings me to the second question posed, namely whether it is open to the
municipality to dispute its liability to Nurcha on the basis that the relevant payment
certificates had not been validly issued. From the bar, in this court, counsel for the
municipality accepted that, strictly speaking, this is not a question of law and, in view
of the absence of a proper factual basis in the stated case, the question could not be
answered in favour of the municipality. The question accordingly fell away.

[28] In view of the agreement of the parties, as recorded in paragraph 15 above,
Nurcha is accordingly entitled to judgment in terms of prayers A, B and C of its
particulars of claim. I should record that we have been advised by counsel that all
reserved issues as to costs have been settled, as reflected in the order below.

[29] In the result the following order is made:
1 The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel.
2 The order of the court below is set aside and substituted by the following order:
„Judgment is granted in favour of the plaintiff as follows:

(a) The defendant is ordered to pay the plaintiff the sum of R2 692 467.43, together
with interest thereon at the rate of 15,5 per cent per annum calculated from date of
service of summons to date of final payment.
(b) The defendant is ordered to pay the plaintiff‟s costs of suit, including all reserved
costs save for those occasioned by the postponement of the matter on 12 March
2012 which are to be paid by the plaintiff, such costs, where applicable, to include
the costs of two counsel.‟r

________________________
P B FOURIE
ACTING JUDGE OF APPEAL

APPEARANCES:

For Appellant:

R G L Stelzner SC

L C Kelly

Instructed by:

DMO Attorneys, Bryanston

Honey Attorneys, Bloemfontein

For Respondent:

L J Joubert

Instructed by:

Coetzee & Van Der Bergh, Oudtshoorn

Rossouws, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 20821/2014

In the matter between:

NURCHA FINANCE COMPANY (PTY) LTD

APPELLANT

and

OUDTSHOORN MUNICIPALITY

RESPONDENT

Neutral Citation:
Nurcha Finance Company (Pty) Ltd v Oudtshoorn Municipality
(20821/2014) [2016] ZASCA 28 (23 March 2016)

Coram:
Ponnan, Pillay and Petse JJA and Fourie AJA
Delivered:  22 July 2016

ORDER

The order granted in the above appeal on 23 March 2016 is varied by substituting
sub-paragraph (a) of paragraph 2 thereof with the following:
„(a) The defendant is ordered to pay the plaintiff the sum of R2 692 467,43, together
with interest thereon at the rate of 15,5 per cent per annum calculated from date of
service of the application to date of final payment.‟

___________________________________________________________________

JUDGMENT
___________________________________________________________________

Fourie AJA (Ponnan, Pillay and Petse JJA concurring):

[1] On 23 March 2016 this court handed down judgment in the above appeal from
the Western Cape Division of the High Court, Cape Town (Griesel J sitting as court
of first instance). The order made was the following:
„1. The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel.
2. The order of the court below is set aside and substituted by the following order:
“Judgment is granted in favour of the plaintiff as follows:
(a) The defendant is ordered to pay the plaintiff the sum of R2 692 467.43, together
with interest thereon at the rate of 15,5 per cent per annum calculated from date of
service of summons to date of final payment.
(b) The defendant is ordered to pay the plaintiff‟s costs of suit, including all reserved
costs save for those occasioned by the postponement of the matter on 12 March
2012 which are to be paid by the plaintiff, such costs, where applicable, to include
the costs of two counsel”.‟

[2] The appeal had its origin in an opposed application which was subsequently
referred to trial and, after the exchange of pleadings, two questions of law were
identified which the parties agreed to place before the trial court by way of a stated
case in terms of Uniform Rule 33(4). It was not a trial action which had been
commenced by the issuing of summons.

[3] The parties have drawn our attention to the fact that the order in sub-
paragraph 2(a) thereof erroneously refers to the calculation of interest „from date of
service of summons‟. The order should refer to the calculation of interest from the
date of service of the application by means of which this matter had been
commenced. This is a patent error which stands to be corrected in terms of Uniform
Rule 42(1)(b).

[4] In the result the order above will issue.

______________________
P B Fourie
Acting Judge of Appeal

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

23 March 2016

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment of the Supreme Court of Appeal.

Nurcha Finance Company (Pty) Ltd v Oudtshoorn Municipality (20821/2014) [2016] ZASCA 28
(23 March 2016)

The Supreme Court of Appeal has upheld the appellant’s appeal against the judgment of the Western
Cape High Court dismissing its claim for damages against the Oudtshoorn Municipality. The
municipality had undertaken to pay amounts due by it in terms of a building contract with a third party,
to the appellant. However, upon the cancellation of the building contract, the municipality refused to
make the payments due to the appellant. The SCA held that the payments were due in terms of the
undertaking given by the municipality and that the appellant’s claim was not precluded by virtue of the
cancellation of the building contract. The municipality was accordingly ordered to pay damages to the
appellant in an amount of R2 692 467.43, together with interest thereon and costs.

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