CAN A BANK LEGALLY EJECT A CONTRACTOR FROM SITE WHO HAS INVOKED HIS COMMON LAW BUILDER’S LIEN AGAINST THE DEVELOPER, BECAUSE THE BUILDER HAS SIGNED THE BANK’S WAIVER OF LIEN?
The Courts were called upon to answer this question in NBS Bank Bpk v Dirma BK en n Ander 1998 (1) SA 556 (T).
The bank had advanced money for the development of a sectional title scheme to the developer, who in turn appointed the builder. The loan was secured by a mortgage bond over the property belonging to the developer.
At the time of the conclusion of the loan agreement the bank and the developer had agreed that the bank's standard terms and conditions" as well as its "additional conditions" should apply. In terms of the "additional conditions" the developer undertook to ensure that the builders working on the site renounce their rights of lien in favour of the bank in writing. The additional conditions were not however incorporated into the bond deed.
In compliance with the developer's undertaking the builder signed a "waiver of builder's lien". In it the builder agreed that the bond to be passed by the developer in favour of the bank should take priority over any lien of the builder for work done and that in so far as any rights conferred on the bank by the said bond are concerned, the builder would not enforce its right of lien against the bank or against the developer to the detriment of the bank.
Early in 1997 the developer and the builder became involved in a dispute. The result was that the builder refused to continue performing until he was paid for the work already done, while the developer refused to pay the builder because, so he claimed, the building contract had been legitimately cancelled and no money was due to the builder by the developer.
The builder thereafter invoked his common law builder's lien and refused to vacate the site. The bank applied for the ejectment of the builder from the building site. The developer supported the application.
In considering the bank's application the Court held that the question whether the bank was entitled to the order ejecting the builder depended on the correct interpretation of the "waiver of builder's lien" read with the provisions of the mortage bond.
The applicable clause in the "waiver of builder's lien" reads "... We Dirma CC hereby agree that the bond passed by the....owner in favour of the NBS Bank Ltd...shall take priority to any lien...to us as building contractor for work done or to be done by us... We agree to bind ourselves not to enforce our aforesaid right of lien...against NBS or against the owner to the detriment of the NBS.
The applicable clause in the "additional conditions" reads "...The borrower undertakes that all contractors...engaged in the works who might have or be entitled to acquire any lien...on the property shall renounce and waive such right in favour of the NBS in writing..."
The Court held that it was clear that the "waiver of lien" did not amount to a general renunciation of its rights by the builder, but rather to waiver of its right of lien with respect to those rights acquired by the bank under the bond, coupled to an undertaking not to exercise any such right against the bank or the developer to the detriment of the bank, once again with reference to the rights acquired by the bank in terms of the bond.
The Court decided, that the waiver would accordingly apply only if the bank decided to foreclose the bond, in which case the waiver would mean that the builder would be unable to enforce its right of lien to the detriment of the bank. The builder's right of lien would normally, have enjoyed precedence over the bank's rights under the bond, so that the waiver meant that the builder had agreed to relinquish those rights should the bank decide to enforce its rights under the bond.
Furthermore, the effect of the waiver was not however also to strip the builder of his right of lien so as to enable the bank to implement the provisions of the ‘additional conditions'. If that had been the intention the waiver would have referred to those conditions. The waiver signed by the builder referred only to the provisions of the bond and to the bank's rights thereunder.
The Court concluded that because the bank did not exercise its rights under the bond, the application for the ejectment of the builder had to be dismissed.
The rationale of this case is clearly that the builder's waiver of lien in this instance did not amount to a general renunciation of its rights of lien but only to waiver of such rights with respect to those rights acquired by the bank under the mortgage bond. The waiver of lien is accordingly only applicable where the bank has enforced its rights under the bond and as the bank failed to call up the bond, it was therefore not entitled to rely on the builder's waive of lien in its attempt to eject the builder from site
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