High Court ruling clarifies payment obligations amidst construction defects

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The High Court recently addressed this in Group Five Construction (Pty) Ltd v IDT and Others, confirming that once a final payment certificate is issued, the employer must pay. Defects must be dealt with separately.

This decision is important for legal, procurement and project teams managing JBCC contracts. It clarifies that defects do not suspend payment obligations and that the certification process is binding.

The conflict: Payment vs defects

Group Five was hired by the Independent Development Trust to build the Mpumalanga High Court. Upon project completion, the principal agent issued a final payment certificate for R14.4m (3 June 2021) and a final completion certificate (11 August 2021), which noted defects like waterproofing issues and possible structural cracks to be addressed during the defects liability period.

Despite final certification, the IDT withheld payment, arguing that the defects made the works incomplete and that payment was conditional on their rectification. It claimed the defects were patent and should have been fixed before final completion, invoking the principle of reciprocity.

The dispute centred on whether the final payment certificate created an unconditional obligation to pay.

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The court ruled that under the JBCC contract, payment must be made within 21 days of the certificate’s issuance, and defects are to be handled separately. IDT’s obligation to pay was not suspended by the defects.

Group Five pursued enforcement, and after procedural delays, the matter reached the High Court.

Key findings from the judgment

• Clause 34.10 of the JBCC is clear: Once a final payment certificate is issued, the employer must pay within 21 days. The court held this obligation is unconditional.
  
• Defects are dealt with under Clause 27: The JBCC provides a separate process for addressing defects, including latent defects. This does not affect the obligation to pay.
  
• Reciprocity does not apply: The employer cannot rely on the principle of reciprocal obligations to delay payment. The JBCC contract structure separates certification from defect rectification.
  
• Final payment certificates are binding: The court reaffirmed that these certificates are enforceable and equivalent to cash, as held in Joob Joob Investments v Stocks Mavundla Zek Joint Venture [2009] (SCA).

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Implications for legal and procurement teams

For legal teams, this judgment reinforces the importance of understanding the JBCC’s certification and payment structure. Payment certificates are not negotiable; they are binding. Employers cannot delay payment by citing defects unless fraud is involved.

For procurement and project managers, this means that once a final certificate is issued, payment must be made, even if defects exist. Those defects must be addressed through the contract’s remedial provisions, not by withholding payment.

What about construction guarantees?

Although the case did not directly concern calls on guarantees, it indirectly reinforces a key principle: only fraud can prevent a call on a construction guarantee. Courts have consistently rejected attempts to resist guarantee calls based on unconscionable conduct or performance disputes.

This aligns with previous decisions from the Supreme Court of Appeal, which confirm that guarantees are enforceable unless fraud is proven.

Action points for legal and procurement teams

• Review JBCC contracts: Ensure your teams understand the distinction between payment certification and defect liability.
  
• Educate stakeholders: Clarify that payment obligations under final certificates are not suspended by defects.
  
• Manage guarantees carefully: Calls on guarantees must be based on fraud and not unconscionability or performance disputes.