The power of a lien.
Coen van Wyk
Just more than twenty years ago I was retained by a civil engineering company who was appointed as main contractor for the construction of two high-rise blocks of holiday apartments on the Natal North Coast. For the sake of convenience I will refer to the construction company as the “builder”. I was appointed as legal adviser by the builder after it became embroiled in a dispute with the developer of the project. What follows is the anatomy of the dispute between the builder and the developer.
After the contract between the developer and the builder was signed, the developer experienced problems in giving the builder access to the building site on which the buildings were to be erected. The problem with access was due to the fact that there was a tenant in occupation of a dilapidated house on the property, and the tenant refused to leave. After two ill-fated attempts (caused by professional negligence) by the developer’s attorneys to have the tenant removed by the use of due legal process, the developer’s attorneys eventually succeeded in getting things right, and the developer was finally able to give the builder access to the property, and the building work commenced. By that time the construction work in terms of the contract had however been delayed by just more than five months and during that period the developer was paying, to the bank, an amount of just more than R50 000 per month on each of the two developments. Any expectation of income from selling the apartments was therefore also set pack by a period of several months. Given the fact that these events occurred more than twenty years ago, the amount of money involved (in present-day terms) was fairly substantial. The developer therefore experienced serious problems with the cash flow pertaining to the projects. When the cash-flow problem reared its ugly head the developer requested an indulgence from the builder regarding the money that was owed to it at that point in time. The builder, on the other hand, failed to pay its suppliers of material that was purchased for the construction work, and just managed to pay the wages of its employees.
And then there came a time when the builder was simply no longer able to continue without being paid, and it made a strong request for payment from the developer. At that juncture the amount that the developer owed to builder was just more than R200 000 (which was a lot of money at the time). The developer was however not in a position to come up with the amount of money that was owing to the builder and it therefore retaliated to the builder’s request for payment by informing the builder that it was in breach of contract regarding the performance schedules that were set out in the contract, and invoking its right in terms of the contract to cancel the contact, and take possession of the property.
From the developer’s perspective that was indeed a smart move because, if the gambit succeeded, the developer would in effect immediately have been exonerated from having to pay an amount of approximately R200 000 (which obviously would have done wonders for the developer’s cash-flow situation).
It was then that the managing director of the builder approached me for advice, and I was subsequently appointed as legal adviser. There was however the problem that the builder was in breach of the contract, in that the contract did not provide for any adjustment to the time schedules in the contract in the event of the developer’s failure, for whatever reason, to give occupation to the builder on the occupation date stated in the contract.
Before the builder was informed of the developer’s decision to cancel the contract, the construction work on the two building sites had come to a halt due to the fact that the developer failed to deliver aluminium windows, and doors and the elevators for the buildings. The developer failed to do so because it did not have the money that was needed to purchase the particular commodities.
After I was appointed as legal adviser, I had a good look at the building contract and advised the builder to inform the developer that the builder does not acknowledge the developer’s right to cancel the contract and also to inform the developer that, until the builder has been paid (in full) all moneys owing to it in terms of the building contract, no further building work would be done in terms of the contact; that the builder exercises its lien over the property; and that it would therefore not vacate the property and give possession of the land to the developer to enable it to continue with building operations.
In response to my advise that the builder should exercise its lien over the property, the managing director informed me that is was his understanding that the builder had waived its lien over the property. His concern flowed from the ultimate clause of the contract that read as follows:
“The builder undertakes to waive its lien over the property, and any improvements on the property.”
The concern about the possibility that the builder had waived its lien over the property was however without any foundation, as is clear from the wording of the clause of the agreement that deals with the waiver. The particular clause merely created an obligation on the part of the builder to waive its lien. It did not constitute the actual waiver of the lien. Therefore, if after the contract was signed, the developer demanded from the builder to waive its lien over the property, and the builder failed to comply with the demand, then it would have been in breach of the contract. After the developer had however fallen in arrears with its payments (to the tune of R200 000) to the builder, it could not enforce the builder’s obligation to waive its lien, without the developer itself paying (or least tendering payment) of the amount that it owed to the builder. Had the developer taken action to claim performance from the builder of its obligation to waive its lien, without having performed or offered to perform himself, the developer’s claim would have been countered by the exceptio non adimpleti contractus, which is literally the defence of the unfulfilled contract.
The developer’s attorneys would however have none of that; contended that clause in the contract that deals with the waiver is indeed a waiver; and threatened with an application to the Supreme Court (as the High Court was known at the time) to enforce compliance with the builder’s obligation to waive its lien. I persisted with my advice and pointed out to the developer’s attorneys that it would take a year for any action that they institute to come before court and that, in that time, their client would be paying interest regarding the project, with no hope of any income and only the prospect of being sued for non-delivery by purchasers of units in the two developments. In due course reason prevailed and the developer agreed to extend the delivery dates in the contract; made an immediate substantial payment to the builder, and agreed to a schedule of payments of the further money owed to the builder.
Before I conclude with some brief notes on liens I may mention that the situation would have been different had the waiver clause in the contract contained the words, “and hereby waives”, since it would then have read as follows:
“The builder undertakes to waive, and hereby waives its lien over the property and any improvements on the property.”
The clause would then have contained, not only an agreement to waive, but also the actual waiver of the builder’s lien over the property.
I now conclude with some notes on liens.
1. Liens are classified according to the type of expenses that the holder of the lien bestowed on the property of another.
(a) A salvage lien comes into existence when a person has incurred expenses that were necessary for the maintenance of the property of another person. An example of such a lien would be where a person lends his car to another for a trip down to Durban and when the borrower refuels at Harrismith, he notices that the tyres of the vehicle are so badly worn that they need to be replaced before the journey can continue. Having replaced the tyres of the vehicle, the borrower would have a lien over the vehicle.
The lien of the holder flows from the fact that the owner of the vehicle had been enriched.
(b) An improvement lien is similar to a salvage lien and arises when useful (but not necessary) expenses were incurred by the holder of the lien.
As is the case with a salvage lien, this type of lien also flows from the fact that the owner of the thing that had been improved, has been enriched.
(c) A debtor-and creditor lien comes into existence when the holder of the lien expended money or labour on a thing and did so in terms of a contract between the parties. The lien serves to secure the payment of the contract price.
The irony of it all of what have mentioned is that it was indeed the intention of the parties that the builder would waive its lien. But the contract did not contain a waiver, and in terms of the parol evidence rule no extrinsic evidence may be adduced tending to contradict, vary or add to the terms of the contract. It was however also not the intention of the parties that that the performance schedules that bound the builder would apply, even if the developer failed to give occupation to the builder on the occupation date mentioned in the contract. Had it not been for the shoddy drafting of the contract, the builder would therefore have been in big trouble and the only thing that saved the builder was;
the power of a lien!