Nurcha Finance Company (Pty) Ltd v Oudtshoorn Municipality

Oudtshoorn Municipality awarded a tender for the construction of 663 houses to Silver Buckle Trade (Pty) Ltd t/a Yethu Projects. Yethu obtained bridging finance from Nurcha Finance Company (Pty) Ltd and ceded to Nurcha all payments due from the municipality under the building contract. The municipality accepted the cession and gave an irrevocable undertaking to pay all certified amounts into a designated project account for Nurcha’s benefit. Although several interim payment certificates were certified and paid correctly, the municipality paid three certified amounts (certificates 7, 8 and 20) into a different account, contrary to its undertaking. Yethu later failed to complete the project, the building contract was cancelled, and Yethu was liquidated. Nurcha sued the municipality for damages equal to the unpaid certified amounts.

The appeal was upheld. The High Court’s order was set aside and replaced with an order directing the municipality to pay Nurcha R2 692 467.43 plus interest at 15.5% per annum (later corrected to run from date of service of the application), together with costs, including the costs of two counsel.

The case clarifies that an employer’s undertaking to a financier based on a cession of payment rights constitutes an independent contractual obligation, unaffected by later cancellation of the underlying building contract. It is important for construction finance, confirming the enforceability of payment undertakings and cessions against municipalities.