Judgments of the principal agent made in error are neither fair nor reasonable to either party. These could range from clerical or arithmetic errors, to substantive errors in assessing the value of work at the relevant time. An inability to correct such errors in subsequent certificates would therefore prevent the principal agent from exercising judgment and certifying fair value as required under the contract.
There is support for this interpretation given that only the final payment certificate is intended to certify the final value of the works. By extension, interim payment certificates should be open to correction.
In South African law, a tacit term can only be introduced into a contract if it satisfies three conditions:
- it does not conflict with the express terms of the contract;
- it can be reasonably assumed that if the parties had been asked to apply their mind to the question both parties would have agreed the tacit term – this is sometimes known as the “reasonable by-stander test” – and;
- the tacit term is necessary for business efficacy in the contract.
Under a reading of the express terms of the contract, it might be considered that the obligation to include the amount previously certified in each subsequent interim payment certificate indicates that the previously certified amount is then not subject to alteration. However, this is merely an accounting exercise in which the previous amount is brought forward in the next payment certificate. This would not preclude adjustments being made for errors in that amount. Instead it merely requires that the payment certificate record what the original amount certified was before any adjustments are made.
Another factor that could be considered to indicate that the power to correct was not intended is that the JBCC form of payment certificate does not make provision for corrections. However, the JBCC form is merely a guidance document. There is no contractual requirement to rigidly adhere to it. Even if the form were taken as indicative of the intention of the drafters of the JBCC, it is the intention of the contracting parties that must be determined and not the drafters of the standard form documents not forming part of the contract. On this basis, there is no express contradictory term to the right to correct being implied.
Were an officious by-stander to ask the parties whether the principal agent ought to have a power to correct an error it made in a certificate, it can reasonably be assumed that they would have agreed that the principal agent would have the power to correct its own errors so as to exercise reasonable and fair judgment in certifications.
The tacit term can also be considered necessary for business efficacy. Without this power being afforded to the principal agent, the only option to correct errors in certifications – no matter how glaring or substantive – would be through an addendum or dispute resolution procedure, a process that unduly hampers the very efficiencies and purposes of having a principal agent in the first place.
Additional points of uncertainty
In our view, the three requirements of South African law for a tacit term to be introduced into a contract would be met in the case of the principal agent’s right to correct. However, the precise scope of the power of the principal agent to correct may be open to further debate.
Corrections to errors that are typographical, arithmetical or clerical, for example, may be more readily imported as a tacit term required for business efficacy than more nuanced or less detectable errors within the measurement of works. It may also be argued that the exercise of reasonable and fair judgment applies at the time of certification of the relevant certificate based on information known at the time and that it does not extend to revising those amounts thereafter when further information comes to light.
In our view the requirement of fair and reasonable judgment is a continuing one and the power to correct should accordingly be widely construed to allow the principal agent to properly fulfil its certification functions.
Another factor worth considering is whether the defects regime has an impact on the scope of any right to correct.
For instance, it could be argued in cases where works previously certified and paid for are subsequently found to be defective that the remedy lies not in correcting the previously certified amount but by invoking the obligations of the contractor to remedy the defect through a contract instruction. Where this instruction is not complied with by the contractor, the employer can then recover the loss and expense incurred in appointing another or others to attend to this. However, there is nothing to suggest that this remedy would be mutually exclusive to such correction if in the principal agent’s view the coming to light of the defect rendered his earlier certification of the value of the works, materials or goods erroneous and unfair.
Amending the JBCC terms
The absence of an express term providing for a principal agent’s right to correct means it is open to debate whether such a right exists. The JBCC terms should ideally be amended to expressly provide for the right to correct. However, in our view there would be a tacit term allowing for the principal agent in exercising fair and reasonable judgment to effect corrections to previous interim payment certificates.
Co-written by Themba Chauke of Pinsent Masons.