Best Care Medical Supplies CC v Standard Bank of South Africa Ltd and Another (42073/2007) [2008] ZAGPHC 152 (3 June 2008)

IN THE HIGH COURT OF SOUTH AFRICA /ES

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO: 42073/2007

DATE: 3/6/2008

NOT REPORTABLE

IN THE APPLICATION BETWEEN

BEST CARE MEDICAL SUPPLIES CC APPLICANT

AND

STANDARD BANK OF SOUTH AFRICA LTD 1ST RESPONDENT

IQNC IMAGINE CONSTRUCTION (PTY) LTD 2ND RESPONDENT

JUDGMENT

SERITI, J

A. INTRODUCTION

[1] This matter came to Court by way of notice of motion. In the notice of motion the Applicant is seeking an order to the effect that the Second Respondent retain, in its attorneys' trust account, an amount of R171 000,00 paid pursuant to a Court order dated 3 September 2007, pending institution by the Applicant, within thirty days of date of this order and finalisation of arbitration proceedings, to be conducted in terms of annexure "A", attached to the founding affidavit. The money paid into the attorneys' trust as mentioned above had to be invested in an interest bearing account by the First Respondent's attorneys.

B. FACTUAL BACKGROUND

[2] 0n or about 2 May 2007 the Applicant and the Second Respondent entered into a standard form Minor Works Agreement. The agreement in question provides, inter alia, that the employer shall provide a payment guarantee of R171 000,00, the valuation date for payments shall be on the 25th day of the month, the contract sum inclusive of tax is R171 000,00 plus the value of extras as provided for in the addendum.

The commencement date of the agreement was 10 May 2007 and the completion date was 26 June 2007, and Second Respondent took possession of the site on 9 May 2007 and the payment guarantee was issued by the First Respondent on 20 June 2007. The Second Respondent in its letter dated 22 June 2007 objected to the guarantee issued. The amended guarantee was issued by the First Respondent on 3 July 2007. The guarantee was transmitted to the Second Respondent on same date after 08:00.

[3] 0n a particular day Second Respondent demanded from the principal agent an interim payment certificate to be issued within five days failing which it intended to cancel the agreement. The Second Respondent relied on a claim it had submitted on 22 June 2007, the same date on which the Second Respondent objected to the First Respondent's initial guarantee, which had in turn, been issued two days earlier (20 June 2007) following the Second Respondent's demand for the guarantee on 15 June 2007.

[4] 0n 10 July 2007, the principal agent issued an interim payment certificate in the amount of R137 419,35 and on 11 July 2007, the Second Respondent presented the Applicant with its VAT invoice for the sum of R123 677,41. The Second Respondent alleges that the difference between the amounts on the payment certificate and the invoice is the retention amount that the principal agent omitted to deduct from the certified amount. 0n 25 July 2007, the Second Respondent addressed an e mail to the Applicant and the principal agent stating that should it not receive the payment of the amount invoiced against the payment certificate of 10 July 2007 within five days, it will cancel the agreement, and also call on the First Respondent to make payment in terms of the guarantee.

[5] 0n 3 August 2007, the Second Respondent submitted to the principal agent a claim for payment of the amount of R137 419,35 for the period 22 June to 2 August 2007. 0n 6 August 2007, the Second Respondent addressed an e mail to the principal agent and the Applicant, in which e mail it is stated, inter alia

(i) the Second Respondent is cancelling the agreement for non payment of the invoice of 11 July 2007;

(ii) the principal agent should complete the final account within thirty days, and continue issuing the interim payment certificates until the final account has been determined. If the principal agent fails to issue the interim or final payment certificates, the Second Respondent intends calling on the First Respondent to make payments in terms of the guarantee.

[6] 0n 1 August 2007 at a site meeting the Applicant advised the Second Respondent that the Applicant is not going to pay for the works until completion of the project. The Applicant alleges that it refused to pay until completion of the project as the purpose of the payment guarantee was to ally the fears of the Second Respondent that the Applicant might not have sufficient funds to pay the contract amount on completion of the project.

[7] 0n 22 August 2007, the Applicant's attorneys addressed a letter to the First Respondent, wherein it is stated inter alia:

"3. We place on record that your liability in terms of the aforesaid guarantee is conditional upon the contractor having:

3.1 demanded payment directly from the employer in terms of clause 2.1 of the payment guarantee;

3.2 demanded payment from you for the sums as certified by the principal agent;

3.3 furnished you with a copy of the payment certificate entitling it to receive payment of the amount demanded.

4. 0ur instructions are further that:

4.1 0n 10 July 2007, the principal agent issued a payment certificate in terms of the agreement between the parties for payment in the sum of R130 548,00, inclusive of VAT.

4.2 Subsequent thereto, the contractor submitted a VAT invoice to the employer in the total sum of R123 677,41, which sum is inconsistent with the amount certified by the principal agent.

4.3 The sum of R137 419,85 claimed by the contractor in terms of the aforesaid guarantee was never demanded from the employer nor was it ever certified by the principal agent."

[8] 0n 1 September 2007, the Applicant's attorneys addressed a letter to the First Respondent. In the said letter a final payment certificate issued by the principal agent was attached. The said certificate indicates that the contractor owes money to the Applicant. The Applicant's attorneys advised the First Respondent not to pay the Second Respondent. Applicant's attorneys pointed out to the Second Respondent that the final payment certificate has been issued and consequently, in terms of clause 9 of the guarantee the guarantee has expired.

[9] The Applicant alleges that on 3 September 2007, despite protests and threats of an urgent application by the Applicant's attorneys, the First Respondent paid the Second Respondent an amount of R171 000,00. When paying the Second Respondent, the First Respondent was already in possession of the final account prepared by the principal agent, which account indicates that the Second Respondent owes the Applicant money.

The Applicant further alleges that the payment guarantee expired on the issue of the final certificate indicating a negative balance against the Second Respondent, and consequently the First Respondent should not have paid the Second Respondent any money.

[10] The First Respondent alleges that payment was made to the Second Respondent after the latter complied with the provisions of clauses 2 and 3 of the guarantee. It further alleges that the guarantee expired on payment of the full guaranteed sum to the Second Respondent and not at any stage prior thereto.

[11] The Second Respondent alleges that the difference between the certified amount of R137 419,35 and the invoiced amount of R123 677,41 is the retention amount that the principal agent omitted to deduct from the certified amount. It further alleges that in terms of the payment guarantee it submitted a claim of R137 419,35 (as the amount certified plus R55 176,00) which is the amount that the Second Respondent demanded to be issued with an interim payment certificate for. The total amount came to R192 295,35 but as the payment guarantee was limited to R171 000,00, the First Respondent paid Second Respondent only an amount of R171 000,00.

[12] The Applicant further alleges that the Second Respondent claimed R137 419,35 from the First Respondent. The interim payment certificate issued by the principal agent was only for the amount of R130 548,90 and the Second Respondent's invoice was for the amount of R123 677,41. The only document showing a balance due of R137 419,35 is the claim submitted to the First Respondent by the Second Respondent. The latter amount is not supported by the invoice nor is it the certified amount.

[13] The Applicant further alleges that the Second Respondent submitted a claim on 2 August 2007, and contrary to the agreement, on 7 August 2007 Second Respondent prematurely demanded that the principal agent issue a payment certificate. 0n 6 August 2007 the Second Respondent demanded that the principal agent should draw up and submit a final account. The principal agent complied with the demand and sent the final account to the First and Second Respondents on 31 August 2007, which is before the First Respondent made the payment to the Second Respondent. The final payment certificate indicates that the Second Respondent is indebted to the Applicant in the amount of R408 956,33.

[14] Second Respondent served and filed a notice of conditional counter-application. In the said counter-application it is stated that in the event of the Court finding that the First Respondent was not in possession of a valid interim payment certificate, the First Respondent is asking for an order declaring that the Second Respondent was entitled to payment of an amount of R130 546,39 as certified by the Applicant's principal agent on 10 July 2007 and which became due and payable on 18 July 2007.

[15] The interim payment certificate issued by the principal agent, dated 10 July 2007 is for an amount of R130 548,39, and the Second Respondent claimed an amount of R137 419,35.

Clause 2 of the payment guarantee sets out the procedure for the claiming of the certified amount. Clause 2.3 thereof provides that a copy of the payment certificate which entitles the contractor to receive payment must also be submitted to the guarantor.

It is common cause between the parties that the guarantor, prior to making payment, was not furnished with the copy of the interim payment certificate in the amount of R137 419,35 as claimed by the Second Respondent. The guarantor was not entitled to pay the amount of R137 419,35 to the contractor.

[16] Both Respondents, in their heads of argument, submitted that the Applicant is estopped from denying that the document on which the First and Second Respondents relied was not a payment certificate. Clause 2 of the payment guarantee mentioned above, clearly states documents that must be submitted to the guarantor prior to the guarantor making any payment. Estoppel principle does not come into the picture. It cannot be used to alter the clear meaning and intention of the payment guarantee terms. It is not only the Applicant who alleges that there was no payment certificate in the amount of R137 419,35, submitted to the guarantor, but that fact is common cause between the parties.

Prior to making the payment, the guarantor should have ensured that all the necessary documents have been submitted by the contractor.

[17] Clause 3 of the payment guarantee provides that the guarantor will pay the contractor the sum demanded by the contractor under certain circumstances. The contractor duly complied with the provisions of the said clause 3 and the guarantor accepted the claim and paid the demanded amount.

The dispute that arose between the Applicant and principal agent on the one hand and the contractor on the other hand, does not affect the obligations of the First Respondent to pay the contractor as provided for in clause 3 of the payment guarantee.

The Applicant's counsel submitted that at the time of payment by the guarantor, the payment guarantee had already expired.

The payment guarantee stipulates that "Guarantee expiry date means until cancelled."

Clause 9 thereof provides that the payment guarantee expires upon payment of the final payment certificate in terms of the Agreement or on payment in full of the guaranteed sum or on the guarantee expiry date, whichever is the earlier.

At the time of the payment, the payment guarantee was not cancelled, nor was the final payment made nor was the full guaranteed amount paid.

It is my opinion that at the time of payment, the payment guarantee had not yet expired.

The dispute between the Applicant and the contractor does not affect the guarantor. The guarantor was bound to pay, in accordance with the provisions or terms of the payment guarantee. There was no Court order preventing the guarantor from making any payment in terms of the payment guarantee.

[18] The amount paid by the guarantor in terms of clause 3 of the payment guarantee is R55 176,00. This amount, the guarantor was entitled to pay. The guarantor was not entitled to pay the amount of R137 419,35. The difference between the guarantee amount and the amount that the guarantor should have paid in terms of clause 3 of the payment guarantee is R116 824,00.

[19] There is a dispute between the Applicant and the Second Respondent revolving around who owes who. The Second Respondent alleges that the Applicant owes it money, and on the other hand principal agent issued a certificate indicating that an amount of R408 956,33 is owed to the Applicant by the Second Respondent.

Clause 18 of the "Minor Works Agreement" provides that any dispute between the parties shall be referred to arbitration.

[20] In the counter-application, the Second Respondent is seeking payment of the amount of R130 548,39 as certified by the principal agent. In order to recover the said amount, the Second Respondent should have followed the procedure as stipulated in clause 2 of the payment guarantee, which it failed to follow. There is now a dispute between the Applicant and the Second Respondent as to who owes who, which dispute, in terms of the "Minor Work Agreement" should be referred to arbitration.

My view is that as the said amount was not dealt with in accordance with the payment guarantee, same should now be dealt with by the arbitrator.

[21] The Applicant was partially successful against both Respondents. The counter-application of the Second Respondent cannot succeed as I mentioned in the previous paragraph. An appropriate order for costs, in my view, is that each party should pay its own costs of this application.

As far as the reserved costs of 10 April 2008 are concerned, from the remarks of TOLMAY, AJ, it appears that the postponement was occasioned by the fault of the Applicant and the Second Respondent.

The application was precipitated by the First Respondent's action. It paid the whole amount of the guarantee despite the fact that certain procedural requirements were not met. My view is that the First Respondent should also carry its own costs of 10 April 2008, like the other parties.

[22] 0n the papers, the Applicant has not made out a case for any final relief, and consequently I will grant an interim relief pending the outcome of the arbitration. The amount of money that the Second Respondent is not entitled to at this stage, should remain in the attorneys' trust account.

[23] I therefore make the following order:

(a) the Second Respondent should retain, in its attorneys' interest bearing trust account an amount of R116 824,00, pending an outcome of arbitration proceedings;

(b) the Applicant should institute the arbitration proceedings within thirty Court days from date of this order;

(c) no order as to costs.

W L SERITI

JUDGE OF THE HIGH COURT

42073-2007

HEARD ON: 21 MAY 2008

COUNSEL FOR THE APPLICANT: J F GROBLER

INSTRUCTED BY: WEBBER WENTZEL ATTORNEYS

FIRST RESPONDENT'S COUNSEL: J ROUX

INSTRUCTED BY: FRIEDLAND HART & PARTNERS

SECOND RESPONDENT'S COUNSEL: J F STEYN

INSTRUCTED BY: DENEYS REITZ ATTORNEYS