The appellant (RAL) engaged the first respondent (contractor) under a COLTO standard form engineering contract to construct roadworks in the Phiphidi area during July 2005. Work was halted for approximately five months (October 2005 to April 2006) due to an interim interdict obtained by an unsuccessful tenderer, Raubex (Pty) Ltd, pending a review application. Raubex gave an undertaking to indemnify the contractor for losses arising from the delay. The contractor claimed additional remuneration for expenses incurred during the work stoppage under clause 51(1) of the contract, which the engineer awarded. RAL rejected interim payment certificate No. 10 (issued 13 October 2006) because it included the work stoppage claim, taking the view that Raubex should pay this amount under its indemnity. RAL instructed the engineer to issue a fresh certificate excluding this amount. Certificate No. 11 was also rejected for incorrect calculations. The contractor issued notice on 15 November 2006 demanding payment of certificate 10 within 14 days, threatening cancellation. On 13 December 2006, the contractor purported to cancel the contract for non-payment. RAL accepted the cancellation on 15 December 2006. The engineer subsequently issued payment certificate 12/13 covering the period to cancellation, which was also disputed. Amended certificates 10 and 11 for lesser amounts were issued and paid. The contractor applied for judgment on the original amounts in certificates 10, 11 and 12/13.
The appeal succeeded with costs (including costs of two counsel). The order of the High Court (Southwood J) was set aside. The contractor's application was dismissed with costs (including costs of two counsel).
The binding legal principles established are: (1) Under clause 2(8) of the COLTO contract, the employer has the power to reverse (revoke or annul) any certificate issued by the engineer, and if deemed necessary, to amend it, with such amended certificate deemed to be issued by the engineer. (2) The manner in which the reversal is effected (whether the employer issues a new certificate itself or instructs the engineer to recalculate) does not affect the validity of the exercise of the power under clause 2(8). (3) The power to reverse certificates under a clause beginning "Notwithstanding any provisions to the contrary in the Contract" and referring to "any certificate" extends to all certificates, including those embodying the engineer's rulings under claims provisions (such as clause 51), unless expressly limited. (4) A certificate issued after cancellation of the contract is not a certificate contemplated by the contract while in force. (5) Where a contractor purports to cancel a contract under a specific contractual provision (clause 59) for employer's default, but the employer was not in fact in default and accepts the contractor's conduct as repudiation, the cancellation is not effected under that contractual provision and the contractor cannot rely on survival clauses attached to that provision. (6) The contractor is not without remedy where the employer reverses certificates, as dispute resolution provisions in the contract (clauses 60 and 61) provide mechanisms for resolution.
The court noted that clause 2(8) is a "novel clause in the field of building and engineering contracts" and represents a departure from earlier forms of standard contracts which bound the employer to pay interim certificates while the contract remained in force, with disagreements deferred for resolution after completion. The court emphasized that each contract must be construed according to its own terms and not those of other "standard contracts". The court also observed (without deciding) that the fact that an interim certificate creates a self-sufficient debt does not mean that the employer cannot raise a defence to a claim based on such a certificate, accepting for the purposes of the case that the employer is entitled to raise a defence of any kind to claims based on certificates. The court did not need to determine the ultimate validity of the contractor's claim for work stoppage expenses or whether Raubex or RAL would ultimately be liable for such expenses under the indemnity undertaking.
This case establishes important principles regarding the interpretation and operation of COLTO standard form engineering contracts in South African law, particularly concerning: (1) the scope of an employer's power to reject interim payment certificates under clause 2(8); (2) the proper interpretation of "reverse" in such clauses as meaning to revoke or annul; (3) the relationship between the employer's power to reverse certificates and the engineer's rulings under claims provisions; and (4) the distinction between contractual cancellation provisions and common law cancellation/repudiation. The judgment clarifies that interim payment certificates under standard form contracts do not create absolute payment obligations immune from employer challenge where the contract expressly confers such powers on the employer. It represents a departure from earlier standard contract forms that bound employers to pay interim certificates while the contract remained in force.