When employers delay payment: The Inyatsi Construction case
What happens when an employer delays paying for a construction project that has been completed and signed off? The case of Inyatsi Construction SA Limited v The National Department of Public Works and Somama Construction provides an important answer. It reaffirms a simple principle that lies at the heart of the construction industry: payment certificates are liquid documents.
In March 2019, Inyatsi Construction SA, acting as part of a joint venture with Somama Construction, took legal action against the National Department of Public Works.
The dispute arose from a final payment certificate (FPC) issued on 9 January 2018. The FPC confirmed amounts owed to the JV for upgrade works completed at the Nelson Mandela Museum, carried out under a contract signed in November 2011. The contract was governed by the 2005 JBCC Principal Building Agreement, Edition 4.1. What is important to note about the JBCC PBA Ed 4.1 is that, where the employer is an organ of state, there are certain so-called “state provisions” that may apply instead of the ordinary standard form terms.
Issues before the court
The High Court was asked to decide two key questions:
- Does the FPC amount to a “debt” under the Institution of Legal Proceedings against Certain Organs of State Act, Act 40 of 2002? If yes, then prior notice would have been required before instituting proceedings.
- Does the FPC qualify as a “liquid document”? In other words, can it be enforced as a clear and unconditional acknowledgement of money owed?
The Department of Public Works argued that:
Inyatsi Construction’s claim was a “debt” as contemplated by the Act and should therefore have first given notice under section 3 of the Act before launching proceedings. Because the contractor had not followed this procedure, the Department claimed the application was defective and should be dismissed.
Inyatsi Construction countered that:
The FPC is a liquid document that represents a certified, enforceable obligation to pay. As such, it does not require the prior notice demanded by the Act.
The Court’s ruling
The Court sided with Inyatsi Construction and made two important findings:
- The FPC is not a “debt” within the meaning of the Act.
- The claim was not for damages due to breach of contract, but rather for specific performance of a contractual obligation — namely, payment certified under the contract.
- No prior notice was therefore required before instituting proceedings.
- The FPC is a liquid document.
- The Court reaffirmed that an FPC is the equivalent of an acknowledgement of debt.
- Referring to cases such as Randcon (Natal) (Pty) Ltd v Florida Twin Estates Ltd and Twee Jonge Gezellen (Pty) Ltd v Land and Agricultural Bank of South Africa, the Court held that certificates of this nature are clear, unconditional undertakings to pay a fixed amount.
- They can be enforced through a provisional sentence procedure.
Commentary
This judgment reinforces the sanctity of payment certificates and that they must be honoured.
Practical takeaways for contractors
- Treat FPCs as enforceable tools: Once issued, an FPC is equivalent to an acknowledgement of debt and can be enforced through provisional sentence.
- No prior notice is needed under the Act: If your claim is for certified payment under a contract (specific performance), you do not need to comply with the notice requirements under the Act.
Practical takeaways for employers
- Be careful with issuing FPCs – if there are doubts on the amount owing utilise the dispute resolution mechanisms to raise issues and ask the principal agent to deal with these in terms of clauses 31.1 and 31.2 prior to issuing the FPC. Once a FPC is issued, it creates a clear, enforceable obligation to pay. Withholding payment exposes the employer to immediate legal action.
Contact Nikita Lalla, Ricardo Pillay, Danielle Giannico, or Msizi Zungu to mitigate risks and minimise disputes when planning, negotiating, or delivering infrastructure projects.