WHAT ARE THE LEGAL CONSEQUENCES OF THE ISSUING OF A “FINAL CERTIFICATE” IN TERMS OF A BUILDING CONTRACT?
In Ocean Diners (Pty) Ltd v Golden Hill Construction cc 1993 (3) SA 331 the courts were called upon to determine issues relating to an architect's final certificate.
The employer and the contractor entered into a written agreement for the construction of a restaurant complex at Beach Road, Gordon's Bay. The contract was in standard form approved and recommended by the Institute of South African Architects and other related bodies (the white form). Provision was made in the contract for the appointment of an architect and a quantity surveyor to represent the employer in all matters concerning the works and their completion.
A clause in the contract provided that the contractor was entitled to receive from the architect interim certificates at intervals not greater than one calendar month, a penultimate certificate and a final certificate stating therein the amount due to the contractor, and to payment of such amount by the employer within the period set out in the agreement.
Various interim certificates based on the progress of the works were issued from time to time by the architect. A penultimate certificate was issued and upon completion of the works the architect issued a final certificate.
The final certificate reflected the total value of work done by the contractor. From this was deducted the amount previously certified, as well as certain retention moneys, leaving a balance owing to the contractor.
The final certificate contained an acknowledgement of the employer's indebtedness to the contractor and included a promise to pay such amount within seven days. The employer sought to challenge the status of this certificate, and questioned before the court, whether or not the certificate by the architect was a final certificate in terms of the contract.
In deciding the matter the court held that a final certificate by an architect in terms of a building contract depends in the first instance on the proper interpretation of the agreement. Thus, where the agreement provides that a final certificate issued in terms of the contract shall be conclusive evidence as to the sufficiency of the said works and materials, and of the value thereof, the effect of such a certificate is to determine the respective rights and obligations of the parties in relation to matters covered by the certificate. This final certificate constitutes (in the absence of a valid defence) conclusive evidence of the value of the works and the amount due to the contractor. The certificate embodies a binding obligation on the part of the employer to pay that amount. The failure of the employer to pay within the time stipulated entitles the contractor to sue on the certificate.
If the effect of a building contract is to confer finality upon a certificate, a certificate validly issued cannot, in the absence of a contractual provision to the contrary or agreement or waiver by the parties, be withdrawn or cancelled by an architect in order to correct mistakes of fact or value in it. Therefore once the architect has issued the certificate, he is functus officio (has discharged his office) insofar as the certificate and matters pertaining thereto are concerned. That being so, the architect is not entitled unilaterally to withdraw or cancel the certificate.
A final certificate is not open to attack because it was based on erroneous reports by the agent of an employer or the negligence of his architect. The failure of the employer's quantity surveyor properly to scrutinise the claims put forward by the contractor, and his failure to rectify any errors, and the possible negligence of the architect in failing to satisfy himself as to the correctness of the claims and valuations before issuing the certificate, will accordingly not provide a defence to an action on the certificate, nor will it allow the architect to cancel or withdraw the certificate.
An undertaking by an employer in a building contract that a final certificate issued by a responsible agent (the architect) shall be conclusive evidence of the employer's indebtedness is not in the least offensive to public policy. For a party contractually to abandon his ordinary right to prove that an admission which he made (through his representative) was wrongly made is not in itself contra bonos mores (against the convictions of society). The whole purpose of a provision such as described above is to bring about finality in the respective rights and obligations of the parties and to obviate the need for expensive litigation over what are (or may be) minor issues. To ensure this they contractually bind themselves to accept as final and conclusive the certificate of a professional person who they are entitled to expect will act fairly and impartially. Its provisions cannot therefore be said to be inimical to the public interest.
When it is known that the final certificate is not entirely accurate in relation to either the valuation reflected therein or the amount due to the contractor, it would not be contrary to public policy to enforce it. Public policy is largely concerned with the potential for manifest unfairness or injustice within a given situation. Where, therefore, the employer has suffered damage through a negligent failure on the part of either his quantity surveyor or architect to act in his best interests, he would have an action for damages against them. The situation where the certificate is known to be inaccurate as aforesaid is therefore not one inherently fraught with unfairness or injustice as far as the employer is concerned.
The court, however, found that it was not necessary, by reason of the facts in the present case, to decide whether the negligent or innocent misrepresentations did constitute a defence to an action on a final certificate. But the court did mention that none of the leading writers on building or other contracts mentioned negligent or innocent misrepresentation (relating to an architect's certificate as such) as a defence to a claim on a final certificate. The clear impression of the authorities is that such misrepresentations are not available as defences. The reason could be that they are not appropriate defences, having regard to the functions of the architect who issues the certificate and the scrutinizing mechanisms available to him before issuing a final certificate, as well as for the need for finality.
The appeal was dismissed with costs
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