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[2015] ZAGPJHC 264
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Kristabel Developments (Pty) Ltd v Credit Guarantee Insurance Corporation of Africa Limited (23125/2014) [2015] ZAGPJHC 264 (20 October 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Case
number: 23125/2014
DATE:
20 OCTOBER 2015
In
the matter between:
KRISTABEL
DEVELOPMENTS (PTY)
LTD
..................................................................................
Applicant
And
CREDIT
GUARANTEE INSURANCE
CORPORATION
OF AFRICA
LIMITED
..........................................................................
Respondent
Performance/credit
guarantee – cancellation and demand by beneficiary/applicant of
guarantor/respondent - novation alleged
– facts examined
to ascertain whether or not replacement agreement - terms
uncertain and incomplete, claim
unenforceable,
proposals on calculations of claim still awaited, no
external tie-breaker to impasse,
references to
still-to-be-drafted agreement, unilaterally determined payment
made pursuant to credit guarantee,
all
proposals made ‘without prejudice’ to rights under
guarantee - hence no novation found.
Performance/credit
guarantee – compliance challenged – letter of
cancellation delivered prior to and not contemporaneous
with letter
of demand - English and South African cases distinguish
between performance guarantees and letters of credit
- the
latter requires ‘strict’ compliance - English and
South African courts have spelt out why strict
compliance required in
letters of credit and reasons for compliance in performance
guarantees – South African law not held
that ‘strict’
compliance required with performance guarantees – in casu
the reasons for compliance as set
out by supreme court of appeal
adhered to, deliver of cancellation prior to demand constituted
compliance in terms
of guarantee.
Performance/credit
guarantee - guarantor paid some fifty per centum of the
sum demanded under the guarantee in
its letter of demand –
no challenge raised to compliance or otherwise of demand –
guarantor had a choice between ‘say
nay’ or ‘pay’
and chose to pay – guarantor has waived any right to try to
void the demand.
JUDGMENT
SATCHWELL J:
INTRODUCTION
Applicant,
who was the employer in a JBCC contract and the beneficiary under a
performance guarantee, has claimed the sum of R
12 438 671, 61
premised on a credit guarantee also named the construction guarantee
(‘the guarantee’). The respondent,
the guarantor, has
opposed this application firstly, on the grounds of a claimed
subsequent agreement of settlement which is
alleged to have novated
that earlier credit guarantee and secondly, on the grounds of
claimed non-compliance with the terms of
the guarantee.
It seems
to me that it is the facts of the matter which are determinative of
both issues. Accordingly, I set out the chronology
of events which
give rise to the disputes before this court. In the main, this is
based upon a series of emails between the respective
parties’
attorneys and for clarity I shall only indicate the sender thereof.
Respondent
issued the credit guarantee (31
st
October 2012).
Applicant
cancelled the contract with the contractor third party (on 30
th
April 2014).
Applicant
emailed a copy of the letter of cancellation to the respondent of
which receipt was acknowledged (20
th
May 2014).
Applicant
sent a letter of demand to respondent (4
th
June 2014).
Applicant
launched motion court proceedings against respondent claiming
payment under the guarantee (26
th
June 2014).
Applicant’s
attorneys advised that he was instructed that ‘our clients
met yesterday and have agreed to resolve
the matter” on
certain terms. (1
st
August 2014).
Respondent’s
attorneys stated that “I confirm that my client is in
agreement with the agreement as you have recorded
it in your email
below” and advising “I agree that we need to make the
mechanism whereby monies are released from
the ENS Trust Account, a
workable one, given that there may be a disagreement between our
client’s respective quantity
surveyors, in relation to
measurement figures. (8
th
August 2014).
Applicant’s
attorneys confirmed payment of the sum into the trust account,
asking whom has been appointed as respondent’s
quantity
surveyor and asking respondent’s attorneys to “forward
to me your proposals on the assessment mechanism,
as mentioned in
your last email to me”. (15
th
August 2014).
Further
correspondence advised details of the respective QS.
Respondent’s
attorneys emailed that he would be “forwarding to you my
proposal on the assessment mechanism”
and asking whether or
not a status report had been drawn up ‘at the time of
cancellation’ and if not, was there
‘any record of the
status of the works at the time of the cancellation.’ (18
th
August 2014).
Further
correspondence recorded that the QS had exchanged documentation and
were going through documents.
Respondent’s
attorneys emailed that, he would clarify issues with respondents
QS, “where after I will be in a position
to draw a draft
agreement, which I will then send to you.” (4
th
September 2014).
There
was and continued to be correspondence as to respondent’s
payment of the monies claimed into their attorneys trust
account.
Applicant’s
attorneys emailed that “all of the information forwarded to
you by our client was obviously done so
as part of the without
prejudice engagement taking place between our clients. That being
so, please can you come back to me
urgently on the finalization of
the matter?” (26
th
September 2014).
Applicant’s
attorneys emailed regarding hoarding provisions and interest claims
and stating “I am instructed to
record that our client
demands your client’s overall settlement proposal we [be]
forwarded by close of business today.”
(31
st
October 2014).
Applicant’s
attorneys emailed advising of applicant’s banking details and
asking “please will you confirm
with me as soon as payment
has been made and also the exact amount.” (3
rd
November 2014).
Respondent’s
attorneys advised that “the amount is R 6 060 405.22”
(3
rd
November
2014).
Applicant’s
attorneys emailed that applicant “confirms receipt of R 6
060, 405.22 which it accepts on account and
without prejudice to
its rights regarding the claim for payment of the balance of the
guaranteed amount.” and asking
for “1. A breakdown of
how your client calculated the amount which was paid to our client;
and 2. In respect of amounts
which were claimed by our client and
not paid by your client, your client’s reasoning therefor.”
(11
th
November
2014).
Applicant’s
attorneys advised that applicant “1. Is no longer prepared to
delay this matter any further; 2. Will
shortly be issuing summons
against your client claiming payment of the balance of the
guaranteed amount; and 3. Accordingly
withdraws the application
under Johannesburg High Court case number 23125/2014, with full
reservation of its rights to claim
the costs of that application in
the action mentioned above.” (the date is not set out in the
email but it apparently
follows on from one from respondent’s
attorneys dated 19
th
November).
Respondent’s
attorneys advised of “certain aspects… that are of
remaining concern” i.e. those pertaining
to hoarding charges
and the finance costs and that “my client has made a payment,
but that payment is not made in full
and final settlement of any
particular heads of claim/components thereof. In the circumstances
clause 7 of the guarantee remains
of application relative to the
amounts claimed.” (5
th
December 2014).
[1]
Respondent’s
attorneys emailed that the earlier email that day “was also
necessarily sent in a without prejudice
context and the payment
made also in a without prejudice context, and without admission of
liability, as also entirely [without]
prejudice to all our client’s
rights including its right in terms of clause 7 of the guarantee.”
(5
th
December 2014).
Applicant’s
attorneys responded that applicant does not intend supplementing
its founding affidavit and requires respondent
to file its
answering affidavit by 23
rd
January 2015. (11
th
December 2014).
NOVATION
Applicant
maintains that it sues upon the credit guarantee whilst respondent
maintains that there was a subsequent agreement which
has novated
that guarantee. Applicant submits that, at most, there were certain
proposals to resolve the dispute and an ongoing
attempt to resolve
the matter which foundered upon the mechanism of resolution.
Respondent contends that the matter was settled
either when the
clients “agreed to resolve the matter” on specified
terms on or by first August 2014 or when respondent’s
attorneys confirmed “my client is in agreement with the
agreement as you have recorded it” on 8
th
August
2014. In other words, respondent submits that there was either an
agreement reached by 1
st
August or there was an offer on
that date which was accepted on 8
th
August.
The
relevant portions of the two documents read as follows:
The
Credit Guarantee – clause 5
“
Subject
to the Guarantor’s maximum liability referred to in 1.0 or 2.0
, the Guarantor undertakes to pay the Employer the
Guaranteed Sum or
the full outstanding balance upon receipt of a first written demand
from the Employer to the Guarantor at the
Guarantors physical address
calling up this Construction Guarantee….”. The
Guaranteed Sum is defined to mean “the
maximum aggregate amount
of R 20 731 119.36”.
Email
of 1
st
August 2014
“
Our
clients have agreed to resolve the matter on the following basis:
i.
“
Our client will deliver the original
guarantee to your client;
ii.
Your client will then pay the amount demanded by
our client into your firm’s trust account;
iii.
Our clients QS [quantity surveyor] and one
appointed by your client will then assess the further costs incurred
since the guarantee
was called, together with any additional costs to
be incurred and your firm will then pay our client, out of the funds
held, on
receipt of an instruction to that effect.”
I am
unable to find, on the facts before me, that there has been an
agreement in August 2014 which novated the earlier credit
guarantee
of 31st October 2012. It is my view that this conclusion emerges
from the correspondence in which it is sought to found
the novating
agreement.
First,
the terms or basis upon which it was advised on 1
st
August that the clients had met and agreed to resolve the matter are
uncertain, incomplete and apparently incapable of being
finalized.
There is no doubt that the first two of these terms are easily
determinable and capable of being enforced. It is simple
enough to
see whether or not the guarantee has been delivered and to demand
same. Equally it is not difficult to check if funds
have or have not
been paid into an attorney’s trust account and to demand that
same be done.
However,
it is the third term which is without certainty, gives no indication
of how resolution is to be achieved and is no more
than a
provisional attempt to resolve the dispute. Regrettably, this term
omits to identify anything more than an attempt at
a mechanism to
resolve the dispute which is already the subject matter of
litigation – payment of R 12 million pursuant
to a credit
guarantee. What is agreed between the parties (in their emails of
1
st
and 8
th
August) is that each party will
appoint a quantity surveyor, each of which will assess costs
incurred and additional costs and
then applicant will be paid “on
receipt of an instruction to that effect”. Who is “to
give an instruction”
is not identified especially when there
are two quantity surveyors involved and neither has a veto over the
other? What amount
is to be paid cannot be specified because no one
has yet determined an amount and no one has the independent power so
to do?
In the
course of argument I was referred to Christie who wrote that it is
“…not uncommon for parties to record the
progress they
have made in partial agreement thus facilitating the discussion on
the points that remain outstanding”. If
for one reason or
another the intended contract is not concluded one party will
sometimes seek to hold the other to the partial
agreement. Counsel
omitted to refer to the remainder of the quote from Christie:
“
Obviously he cannot be permitted to do so,
because although the partial agreement may have taken the form of an
accepted offer it
lacked
animus contrahendi
,
being designedly incomplete or provisional”.
[2]
Van der
Merwe has usefully summarized the position in regard to what is a
known as ‘an agreement in principle’:
“ …
Such preliminary arrangements, are in
the main, devoid of obligationary effect.
[3]
The “principle use is to promote trust” and to enhance
possibility “by demonstrating a commitment on the part
of the
parties to the conclusion of a contract or to place on record
progress that has been achieved in negotiations” this
enables a
review of progress, identifies outstanding issues and provides a
basis for further progress towards a binding agreement”.
[4]
In the final analysis, the consequences of such documents depends on
the interpretation of their terms in the particular circumstances.
Where such a document records a partial agreement the question is
whether what has been agreed upon can have an existence independent
from what has been left open for later negotiation.
[5]
Should, however, the document reveal an intention to establish
obligations and there is sufficient degree of certainty as
to the
terms agreed to , the label attached to it cannot be decisive.
Obligations, even if only of a limited or partial nature
might be
agreed to and given effect. Misplaced optimism that continuing
negotiations will ultimately be successful, however, is
not a
decisive indication that the document in question was concluded
animo
contrahendi
. Statements to the effect
that what has been agreed upon is to be worked out in detail or that
agreement will still be finalized
suggest the absence of a
contract.
[6]
”
[all of which judgments my clerk has checked].
Secondly,
the absence of any ability to reach certainty and finality in terms
of this proposal was explicitly anticipated throughout.
In
respondent’s attorneys first response to the proposal, on 8
th
August, he advised that “I agree that we need to make the
mechanism whereby monies are released from the ENS Trust Account,
a
workable one,
given that there may be a
disagreement between our client’s respective quantity
surveyors
, in relation to measurement
figures”. This is clear understanding of the possibility that
there may not be agreement between
the two QS and that some
deadlock-breaking mechanism needed to be agreed upon. Applicant’s
attorneys agreed therewith in
his letter of 15
th
August when he wrote asking “
forward to
me your proposals on the assessment mechanism
,
as mentioned in your last email to me”. The response on 18
th
August was that respondent’s attorneys would be
“forwarding
to you my proposal on the assessment mechanism”
[my
underlining].
It is
trite that an undertaking to negotiate further in order to close
gaps in the agreement – a so called agreement to
agree –
is unenforceable and insufficient to cure an incomplete
agreement.
[7]
A breakdown in negotiations would leave the court unable to enforce
the agreement.
[8]
“An agreement to agree may be saved from vagueness where it is
linked to a provision providing for a determination of the
outstanding issues by a third party”
[9]
which did not happen in the present instance. There is no such
provision - either for appointment of an arbitrator or any
means of
calculation to constitute a tie-breaker.
[10]
Where
adequate provision has been made for determination of outstanding
issues, an agreement (if such were to exist) may yet be
found to be
effective. The consequences of any agreement which might have been
contemplated would have had to have been rendered
objectively in the
sense that the arrangement adopted must be capable of providing
certainty by itself, without the need for
further agreement between
the parties or the exercise of an unfettered discretion by one of
them.
[11]
An external standard to determine consequences could be laid or a
mechanism established by means of a specified formula or, as
I have
said, an arbitrator. However, in the present instance, where no such
external standard or mechanism was determined and
was, in fact, left
over for respondent’s attorney to consider and
thereafter to prepare proposals, one can see how
the impasse (so
described by respondent’s counsel) became a deadlock which
meant that the agreement never came to fruition.
[12]
Thirdly,
there was apparently lack of agreement on other issues such as the
hoarding costs and the interest and finance costs
and these, too,
occasioned correspondence on 4
th
September and 5
th
December.
Fourth,
the absence of a clear and unequivocal agreement between the parties
is indicated by reference by respondent’s attorneys
on 4
th
September to the need to resolve outstanding issues “
where
after I will be in a position to draw a draft agreement
,
which I will then forward to you”. When applicant’s
attorneys write on 26
th
September and 31
st
October that he is wanting feedback on “finalization of the
matter and demanding
“your client’s
overall settlement proposal
”,
respondent’s attorneys does not and obviously cannot reply
that agreement has already been reached, a settlement
has been
concluded and the matter has been finalized. [my underlining].
Fifth,
applicant’s claim in its Notice of Motion was for a sum in
excess of R 12 million which is the amount of the credit
guarantee.
Yet the proposal of 1
st
August is silent on any amount
because it has not yet been determined and proves not to be capable
of determination by the mechanism
proposed and adopted. Thereafter,
when a payment is made, applicant’s attorney has to write on
3
rd
November and ask “the exact amount” which
has been paid. When informed of the amount paid, applicant’s
attorney
writes again and asks on 11
th
November how this
sum was calculated. It appears that there is no agreement on the
amount to be paid to applicant, rather a unilateral
imposition of an
amount by respondent.
How can
one novate an agreement which provides for a specified sum of money
by another agreement where no one knows the sum of
money to be paid
or how it is to be calculated? How can one novate an agreement which
provides for a specified sum of money when
two persons are to do
calculations but neither is empowered to finally determine the
solution thereto?
Sixth,
by 26 November, applicant’s attorney is stating that the
exchange of information between the parties was done “as
part
of
the without prejudice engagement
”
between the parties and, on 11
th
November, that receipt of funds was accepted “
on
account and without prejudice to its rights regarding the claim for
payment of the balance of the guaranteed amount
.”
By 5
th
December,
respondent’s attorney is claiming the same
“without
prejudice
” protection to both
information exchanged and payment made which was done
“without
admission of liability”.
[my
underlining].
Where
such exchange of information, discussions and payment are made
without prejudice then it can only be because no settlement
has come
to fruition and thereby no end to the litigation achieved. There may
well have been serious attempts at reaching settlement
but the
ongoing litigation based on the credit or performance guarantee
remained a fallback. There cannot have been
animus contrahendi.
COMPLIANCE WITH THE
GUARANTEE
Clause 5
of the credit guarantee requires a first written demand stating
that:
“
5.1
The Agreement has been cancelled due to the Contractor’s
default and that the Construction Guarantee is called up in terms
of
5.0. The demand shall enclose a copy of the notice of cancellation;
or
5.2
A provisional sequestration or liquidation court order had been
granted against the Contractor and that the Construction Guarantee
is
called up in terms of 5.0. The demand shall enclose a copy of the
court order.”
The
letter of cancellation reads at par 5-6:
“
(5)
Your e-mail to the Employer of 9 April 2014 constitutes a clear and
unequivocal rejection by you of your obligations imposed
in terms of
the JBCC agreement.
(6)
You are hereby advised that the employer accepts your repudiation of
your obligations under the agreement, without prejudice
to its rights
to claim from you such amounts as are due by you to the Employer, and
that the JBCC agreement is accordingly terminated
with immediate
effect”.
21.
The letter of demand states at par 3-6:
“
(3)
On 30 April 2014, and as a result of the contractor’s default
and repudiation of its obligations arising in terms of the
Agreement,
we cancelled the Agreement.
(4)
We enclose under cover of this letter, marked as annexure “A”,
a copy of our letter of cancellation
. [my underlining].
(5)
Pursuant to clauses 5.0 and 5.1 of the guarantee, we demand payment
from you of the amount of the guaranteed sum, R12 438 671.61.
(6)
Pursuant to clause 8 of the guarantee, we accordingly await payment
by you of this amount within 7 days of the date of this
letter”.
It is
not in dispute that the letter of cancellation, dated 30
th
April 2014, was sent to respondent on 20
th
May 2014. Respondent’s attorneys were copied on emails on
meetings subsequent thereto during May 2014.
It is
common cause that the letter of cancellation was not attached to the
letter of demand dated 4
th
June 2014.
Respondent
argues that there has not been ‘strict’ compliance with
the terms of the credit guarantee by reason of
the failure to attach
the letter of cancellation to the letter of demand and, with such
failure to comply with a peremptory provision
of the guarantee, the
demand is fatally defective. Applicant argues that ‘strict’
compliance is not a requirement,
that the letter of cancellation was
delivered prior to the letter of demand which constitutes compliance
and that, in any event,
respondent has waived any entitlement to
require applicant to attach the letter of cancellation to the letter
of demand.
The
first issue is that of prior as opposed to contemporaneous
presentation of the letter of cancellation. The second issue is
that
of waiver.
Compliance
The
first issue is whether or not ‘prior’ compliance rather
than ‘contemporaneous’ compliance in
the context
of this particular matter means there has not been the required
compliance with the credit guarantee.
In
Lombard Insurance Holdings (Pty) Ltd v Landmark Holdings (Pty)
Ltd and Others
2010 (2) SA 86
(SCA)
,
the court stated
that performance guarantees are “not unlike irrevocable
letters of credit where the bank undertakes to
pay provided only
that the conditions specified in the credit are met”.
In
Loomcraft Fabrics CC v Nedbank Limited and
another
[1995] ZASCA 127
;
1996 (1) SA 812
A, concerned with
irrevocable documentary credits, was stated that what must be
“presented to the bank of the documents
specified in the
credit, including a set of bills of lading, which on their face
conform strictly to the requirements of the
credit” (at page
815G). The court affirmed that the documents (such as bills of
lading) on which the letters of credit
are sought to be paid are to
‘strictly’ conform to requirements.
In
OK Bazaars (1929) Ltd v Standard Bank of South Africa Limited
2002 (3) SA 688
(SCA) at para [25] was stated that “if the
presented documents do not conform with the terms of the letter of
credit the
issuing bank is neither obliged nor entitled to pay the
beneficiary without its customer’s consent. … there is,
of course, no doubt that the bank has to comply strictly with the
instructions that it is given by its customer. It is not for
the
bank to reason why. … the Bank must conform strictly in the
instructions which it receives”. Nugent JA confirmed
the
conformity required of the presented documents and the strict
conformity required of the bank.
The
distinction between performance / construction guarantees and
letters of credit has been explained in
Siporex
Trade SA v Banque Indosuez
[ 1986]2 Lloyds
Rep 146 at 159 where Hirst J said that the “
contrast”
between a letter of credit and a performance guarantee was “sound”,
since with the former the bank deals with
the documents themselves,
whereas with the latter the guarantor can rely on a statement that a
“certain event has occurred”.
This statement was
approved by the Court of Appeal in
IE
Contractors Ltd v Lloyds Bank plc and Rafidain Bank
([1990] 2 Lloyd’s Rep 496 (CA) at 501 where Staughton LJ
said that there is less need for a doctrine of strict compliance
in
the case of performance bonds. But he said also that ‘it is a
question of construction of the bond’.”
Accordingly,
the English courts (followed by the South African courts) have, thus
far, taken the approach that there is a difference
or ‘contrast’
between a guarantee where the call is simply based on the say- so
statement of the one party that an
event has occurred and between
letters of credit where the bank is in possession of documents (such
as bills of lading) establishing
the foundation of the call. The
courts have indicated that the more ‘strict’ compliance
is required of the banks
and of the documents presented to activate
letters of credit because the banks themselves are in a position to
evaluate the call
by perusing the various documents. No mention has
been made of the degree of rigour of compliance in the case of
performance
guarantees.
Our
courts have not yet found necessary to determine whether or not
‘strict’ compliance is required of the beneficiary
under
a performance guarantee. In
Compass Insurance
Co Ltd v Hospitality Hotel Developments (Pty) Ltd
[13]
the Supreme Court of Appeal left this issue
of ‘strict’ compliance in the case of guarantees open
for decision on
another occasion
In
Compass
supra,
the terms of the guarantee required (as in
this matter) that the letter of cancellation be attached to the
letter of demand. In
that case, the court found that there had
been ‘no compliance’ at all because there had, in fact,
been no letter
of cancellation extant at the time that the letter of
demand was sent and so the letter of cancellation could therefore
never
have been attached. In fact, there was only a belief or
‘knowledge’ that the required condition for breach, i.e.
liquidation, had taken place – no one was in possession of the
requisite order which was expressly required to be attached
to the
demand. Absent attachment, there could be no compliance at all.
In
Compass
supra
, the court reiterated the need for
compliance:
“
It
should not be incumbent on the guarantor to ascertain the truth of
the assertion made by the beneficiary that the subcontractor
had been
placed under provisional liquidation. That is why Compass Insurance
required a copy of the order itself. Similarly
the guarantor
should not have to establish whether a contract has in fact been
cancelled. That is why a copy of the notice
of cancellation, if
there has in fact been cancellation, is required to be attached to
the demand (clause 4.1). The very purpose
of a performance bond is
that the guarantor has an independent, autonomous contract with the
beneficiary and that the contractual
arrangements with the
beneficiary and other parties are of no consequence to the
guarantor.” [14]
In the
present case, the notice of cancellation did exist. It was
sent to the guarantor and received by the guarantor. Guarantor’s
attorneys were also copied on the correspondence arranging meetings
to discuss this cancellation in May 2014. The existence of
the
cancellation and the reasons therefor were known to the guarantor at
the time demand was made.
35.
Any quibble about the wording of either the
cancellation or the demand is no longer argued by the respondent.
[14]
The guarantee required the letter of demand to state that “The
Agreement has been cancelled due to the Contractor’s
default
and that the Construction Guarantee is called up” while the
demand read “On 30 April 2014, and as a result
of the
contractor’s default and repudiation of its obligations arising
in terms of the Agreement, we cancelled the Agreement”.
The only
issue is whether or not provision of the notice of cancellation (to
the third party) to both the respondent (and its
attorneys)
independently of and prior to the demand can constitute compliance
with the guarantee.
The
respondent and applicant engaged in discussions by email about this
notice of cancellation. The issue was not ignored. Neither
was it
treated as irrelevant or moot by respondent and applicant. Both
guarantor and beneficiary engaged on this cancellation.
To
require that this notice of cancellation, already received and
discussed and engaged upon, be attached to the notice of demand
15
days later is not requiring moonwalking and beneficiary/applicant
could certainly have complied therewith. However, to find
that
failure to attach a written cancellation already received and under
discussion, constitutes complete non-compliance with
the terms of
the guarantee and therefor disentitles the beneficiary/applicant
from proceeding with its demand under that guarantee
is, I believe,
a step too far. The reasons requiring compliance with terms of the
guarantee, especially as restated by the Supreme
Court of Appeal in
Compass
supra
, are
carefully kept in mind in the present instance.
According,
I find that the prior presentation of the cancellation by applicant
to respondent (and to respondent’s attorneys)
instead of
contemporaneous presentation with the demand constitutes, in these
circumstances, compliance with the guarantee.
Waiver
Applicant
relies upon the acceptance of the letter of demand, payment of R 6
million in respect of which repayment has not been
demanded, and the
late raising of this issue by respondents to argue that respondent
has waived any right to void the letter
demand required in the
guarantee. Respondent replies that the R 6 million in payment was
made in terms of the settlement agreement
not the credit guarantee.
Waiver
may be found where a party, who has an election between inconsistent
alternative remedies, abandons or waives one of the
alternatives by
deciding on the other. In this case, applicant would have to show
that respondent, with full knowledge of its
legal position, by
making part payment of R 6 million in terms of the guarantee acted
inconsistently with enforcement of any
right to claim non-compliance
by applicant with the terms of the guarantee. The question for the
court is whether or not respondent
clearly showed the intention to
surrender its right to dispute the demand (by reason of
non-attachment of the cancellation) and
therefore knowingly
renounced its right to dispute the demand
[15]
.
In all
the correspondence to which I have referred there is no mention of
or complaint by respondent of the failure to attach
the letter of
cancellation. Throughout this matter, respondent behaved and
expressed itself as though the demand was good and
compliant. This
is because, submits respondent, respondent was acting in terms of
and making payment in terms of a subsequent
agreement which novated
the agreement contained in the credit guarantee. However, I have
found that there was no such agreement.
Indeed,
when payment of the R 6 million was made, it was not made in terms
of any proposals towards agreement – it was merely
the amount
which respondent’s QS deemed appropriate – it was not an
amount agreed upon by the parties. The payment
was not made pursuant
to the proposals of August.
Further,
that payment R 6 million was thereafter stated “not made in
full and final settlement of any particular heads of
claim/components thereof. In the circumstances
clause
7 of the guarantee remains of application relative to the amounts
claimed.”
(5
th
December 2014) and that “the payment made also in a without
prejudice context, and without admission of liability, as also
entirely [without] prejudice to all our client’s rights
including its right in terms of clause 7 of
the guarantee.”
(5
th
December 2014). Clearly, payment was made with the credit guarantee
in mind as also clause 7 thereof. Clause 7 provides for deducting
any earlier part payments from the guaranteed payment and for
calculation of final amounts owing.
[16]
(My
underlining).
Respondent’s
payment is expressly stated to be subject to clause 7 of the credit
guarantee. The payment is therefore made
pursuant to and subject to
that guarantee – and no other proposal or provisional
agreement or part agreement. Respondent
made payment of an amount
determined by its QS and without input or negotiation or even prior
knowledge by applicant.
In
short, payment can only have been made by reason of the existence of
the guarantee to which such payment was subject. Payment
can only be
made when there is a call or demand made in terms of clause 5 of
that guarantee. Respondent did not, prior to making
payment, claim
that the demand was non-compliant with the terms of clause 5 of the
guarantee and advert to the failure to attach
the notice of
cancellation thereto. Respondent made payment in terms of the
guarantee and by referring to clause 7 of the guarantee
explicitly
acknowledged that payment was pursuant to clause 5 thereof.
I am
satisfied that respondent has indeed waived the one alternative of
insisting on compliance with the terms of clause 5 of
the guarantee
that the notice of cancellation (of 20
th
May) be attached to the demand (of 4
th
June) and instead decided to act in accordance with the other
alternative of making part payment of
R
6 060 405.22
in terms of clauses 5 and 7 of the guarantee. Respondent has
unilaterally abandoned the particular benefit
which was intended to
operate for its benefit - compliance in terms of clause 5 requiring
the letter of cancellation to be attached
to the letter of demand –
by making part payment in terms of the guarantee.
[17]
CONCLUSION
48.
Firstly, I have been asked to find that there has
been novation of the original guarantee. However, it has been
impossible to establish
the effect of such claimed novation. It is
not argued that the original debt in terms of the guarantee of R 12
million has been
extinguished because respondent now argues
that applicant must pursue respondent by way of summons in respect of
the balance
of the original R12 million. The disputed obligations of
the guarantee are therefore still to be relied upon.
49.
Secondly, I have found that the preliminary
proposals to agree have no contractual force because there is clear
evidence that both
respondent and applicant appreciated that
consensus on the outstanding issue of determination of the monies to
be paid and the
methodology of finalising same would have to be
reached before a binding contract could be drafted and come into
existence. Absent
such agreement on any amount or methodology of
determining same, the proposals are devoid of enforceability and
insufficient to
constitute a binding agreement.
50.
Thirdly, I have found that the original guarantee
agreement remains operative and was never novated because their
expressed intentions,
their conduct, the terms of the guarantee
compared with the proposals, and all surrounding circumstances
indicate no contractual
force to the proposals and no novation of the
guarantee.
51.
Fourth, all writers and our courts
[18]
have cautioned that supervening proposals are presumed to be intended
to strengthen and confirm existing rights rather than to
constitute
waiver thereof and substitution under a new contract. Our courts have
been reluctant to imply novation in the absence
of any express
declaration thereof – except by way of necessary inference from
all the circumstances which inference must
not be lightly drawn. I am
satisfied that, in the present case the invitations which were made
were proposals intended to find
a way to work through any
difficulties in implementation of the guarantee and so to strengthen
and enforce the guarantee rather
than to extinguish it.
52.
Fifth, I have found that respondent made an
election (not by itself but with the full involvement of its legal
representatives)
to abandon any right in clause 5 of the guarantee to
insist on a contemporaneous attachment of the cancellation to the
demand and
instead to pursue the alternative option of making part
payment pursuant to that guarantee. Any payment at all by respondent
could
only have been in terms of the guarantee. Respondent had
therefore chosen between living with and acting in accordance with
the
guarantee which required a valid demand before payment was
required to made on the one hand and disputing the demand and so
refusing
to pay anything at all on the other hand. The two are
inconsistent alternatives. Respondent could ‘say nay’ or
‘pay’.
It chose to pay. It therefore waived it’s
rights to challenge the compliance of the demand.
53.
Sixth, I have found that delivery of the letter
of cancellation to respondent on 20
th
May, though prior to and not contemporaneous with the demand of 4
th
June, was compliance (though not ‘strict’ compliance)
with the terms of clause 5 of the guarantee. I have found that,
in
the circumstances, this did not offend against the clear enunciation
of the reasons given the supreme court of appeal for the
need for
existence of and presentation of the cancellation at the time of
demand. The guarantor (respondent) was not required to
go on an
expedition to establish the truth of the averment in the demand that
there had been cancellation – it had already
received the
notice of cancellation. The guarantor (respondent) was not asked to
make enquiries as to the grounds given for cancellation
– it
already knew that the notice of cancellation claimed ‘breach’.
The guarantor/respondent was never under
any illusions or doubts nor
was it ever asked to go beyond its independent and autonomous
contract with the beneficiary/applicant
and make any enquiries of
third parties. It had all the necessary information to hand – a
valid notice of cancellation.
54.
Respondent has already made payment
of
R
6 060 405.22 (six million and
60 thousand four hundred and five rand and twenty two cents)
under
the guarantee. In terms of the guarantee, applicant can
claim no more than the balance of the R12 438 671.61
(twelve million
four hundred and thirty eight thousand six hundred
and seventy one rand and sixty one cents) for which provision is
made. That
balance is 6 378 266, 39 (six million three hundred and
seventy eight thousand two hundred and sixty six rand and thirty nine
cents).
The guarantee obviously allows for adjustments to be made
once final figures are calculated.
[19]
I will therefore make an order for the balance as asked by applicant
in the amount of R 6 378 266, 39 (six million three hundred
and
seventy eight thousand two hundred and sixty six rand and thirty nine
cents)
ORDER
1.
The respondent shall pay to the applicant the sum
of R 6 378 266, 39 (six million three hundred and seventy eight
thousand two hundred
and sixty six rand and thirty nine cents);
2.
The respondent shall pay interest at
the legal rate of interest as follows:
a.
On the amount of R12 438 671.61 (twelve
million four hundred and thirty eight thousand six hundred and
seventy one rand
and sixty one cents); and
b.
On the amount of R 6 378 266, 39 (six million
three hundred and seventy eight thousand two hundred and sixty six
rand and thirty
nine cents) to date of final payment.
3.
The respondent shall pay the costs of this
application including those costs of the unopposed motion of 23
rd
February 2015 when costs were reserved.
DATED
AT JOHANNESBURG 20
th
OCTOBER 2015
SATCHWELL J
Counsel
for Applicant: Adv Smalberger
Attorneys
for Applicant: Werksmans Attorneys
Counsel
for Respondent: Adv Dalrymple
Attorneys
for Respondent: Edward Nathan Sonnenbergs Inc
Dates
of hearing: 07
TH
October 2015
Date
of judgment: 20
th
October 2015
[1]
Clause 7 of the guarantee deals with submission by the employer of
an expense account to the guarantor showing how all monies
received
in terms of construction guarantee have been expended and thereafter
refunding to the guarantor any resulting surplus
from the payments
made in terms of clause 5 (which is the clause providing for the
guarantor ‘s undertaking to pay the
guaranteed sum or full
outstanding balance upon receipt of the demand).
[2]
Christies
The Law of
Contract in South Africa
6
th
Ed Christie and Bradford p37.
[3]
Van Der Merwe
Contract
General Principles
3
rd
Ed Van der Merwe et al p78. See also
Kenilworth
Palace Investments v Ingala
1984 (2)
SA 1
(C);
Murray & Roberts
Construction v Finat Properties
1991(1)
SA 508 (A);
Titaco Projects (Pty) Ltd v
AA Alloy Foundry (Pty) Ltd
1996 (3) SA
320
(W) 331;
Lambons Edms (Bpk) v BMW
(Suid-Afrika) Bpk
[1997] ZASCA 51
;
1997 (4) SA 141
(SCA);
Orda AG v Nuclear Fuels
Corporation of SA Ltd
1994 (4) SA 26
(W); and
Couve v Reddot International
(Pty) Ltd
2004 (6) SA 425 (W).
[4]
Van der Merwe above pg78-79. See also
Kenilworth
Palace Investments v Ingala
1984 (2)
SA 1
(C); and
Stock v Minister of
Housing
2007 (2) SA 9 (C).
[5]
See
Titaco Projects (Pty) Ltd v AA Alloy
Foundry (Pty) Ltd
1996 (3) SA 320
(W)
337C; and
Kenilworth Palace Investments
v Ingala
1984 (2) SA 1 (C).
[6]
CGEE Alsthom Equipments et Enterprises
Electriques, South African Division v GKN Sankey (Pty) Ltd
1987 (1) SA 81
(A);
Murray
& Roberts Construction v Finat Properties
1991(1)
SA 508 (A);
Titaco Projects (Pty) Ltd v
AA Alloy Foundry (Pty) Ltd
1996 (3) SA
320
(W);
Lambons Edms (Bpk) v BMW
(Suid-Afrika) Bpk
[1997] ZASCA 51
;
1997 (4) SA 141
(SCA); and
MV Nagivator (No 1):
Wellness International Network Ltd v MV Navigator
2004 (5) SA 10 (C).
[7]
Van der Merwe above at pg225. See also
Premier,
Free State v Firechem Free State (Pty) Ltd
2000 (4) SA 413
(SCA);
H Merks & Co
(Pty) Ltd v The B-M Group (Pty) Ltd
[1995] ZASCA 45
;
1996 (2) SA 225
(A);
Titaco Projects
(Pty) Ltd v AA Alloy Foundry (Pty) Ltd
1996 (3) SA 320
(W);
Finestone v
Hamburg
1907 TS 629
;
Cassimjee
v Cassimjee
1947 (3) SA 320
(N);
Roode
v Morkel
1976 (4) SA 989
(A);
Hattingh
v Van Rensburg
1964 (1) SA 578
(T);
and
Shell SA (Pty) Ltd v Corbitt
1986 (4) SA 523 (C).
[8]
See
Premier, Free State v Firechem Free State
(Pty) Ltd
2000 (4) SA 413
(SCA) pea 35
at pg 431
Scheepers v Vermeulen
1948
(4) 884 (O); and
Putco Ltd v TV &
Radio Guarantee Co (Pty) Ltd
1985 (4)
SA 809
(A) 828I.
[9]
Letaba Sawmills (Edms) Bpk v Majovi (Edms) Bpk
[1992] ZASCA 195
;
1993 (1) SA 768
(A) at 773 and 776.
[10]
See
Southernport Developments (Pty) Ltd
v Transnet Ltd
2005 (2) SA 202 (SCA).
[11]
See
Genac Properties Jhb (Pty) Ltd v NBC
Administrators CC
[1991] ZASCA 188
;
1992 (1) SA 566
(A);
Proud Investments (Pty) Ltd v Lanchem
International (Pty) Ltd
[1991] ZASCA 60
;
1991 (3) SA
738
(A);
Letaba Sawmills (Edms) Bpk v
Majovi (Edms) Bpk
[1992] ZASCA 195
;
1993 (1) SA 768
(A);
Boland Bank Bpk v Steele
1994
(1) SA 259
(T); and
Vermeulen v Goose
Valley Investments (Pty) Ltd
2001 (30
SA 986 (SCA).
[12]
See also
Burroughs Machines Ltd v Chenille
Corporation of SA (Pty) Ltd
1964 (1)
SA 669
(W);
Patel v Adam
1977 (2) SA 653
(A);
Westinghouse Brake
& Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd
1986 (2) SA 555
(A);
Shell SA (Pty) Ltd
v Corbitt
1986 (4) SA 523
(C);
Genac
Properties Jhb (Pty) Ltd v NBC Administrators CC
[1991] ZASCA 188
;
1992
(1) SA 566
(A) 576;
Proud Investments
(Pty) Ltd v Lanchem International (Pty) Ltd
[1991] ZASCA 60
;
1991 (3) SA 738
(A);
Letaba Sawmills
(Edms) Bpk v Majovi (Edms) Bpk
[1992] ZASCA 195
;
1993
(1) SA 768
(A);
Boland Bank Bpk v
Steele
1994 (1) SA 259
(T); and
Rustenburg Platinum Mines Ltd v Breedt
1997 (2) SA 337 (A).
[13]
2012 (2) SA 537 (SCA).
[14]
Unlike in
Frans
Maas (UK) Limited v Habib Bank AG Zurich [2001] Lloyds
Reports Bank 14 at para [57] to [56]
where
the guarantors obligations were to make payment where there
had been “failure to pay” and instead the
letter of
demand referred to “ failure to meet contractual
obligations” which “ latter concept”
said the court “being wide enough to cover any claim for
damages for unliquidated or unascertained sums arising from any
branch of the WTA which would seem to me to widen the scope of the
guarantee far beyond that which the parties intended”
and
unlike
Denel
Soc Limited v ABSA Bank Limited and others [2013] 3 All SA 81
GSJ
where the guarantor was obliged to make payment on the
condition that the third party not performed
according to the
“warranty obligations” and the demand
referred to the “contractual obligations”
which were, found, without discussion, to be
non-compliant.
[15]
See Kerr
The
Principles of the Law on Contract
6
th
Ed Kerr at pg 464-465.
[16]
Clause 7 reads: “Where the Guarantor is a
registered insurer and has mad payment in terms of 5.0, the Employer
shall upon
the date of issue of the final payment certificate submit
an expense account to the Guarantor showing how all monies received
in terms of the Construction Guarantee have been expended and shall
refund to the Guarantor any resulting surplus. All monies
refunded
to the Guarantor in terms of this Construction Guarantee shall bear
interest at the prime overdraft rate of the Employer’s
bank
compounded monthly and calculated from the date payment was made by
the Guarantor to the Employer until the date of refund..”
[17]
Van der Merwe above at pg 528.
See also
Westmore
v Crestanello
1995 (2) SA 733
(W)
.
[18]
From
Pothier to Kerr and Christie. See also
Electric
Process Engraving and Stereo Co v Irwin
1940 AD 220.
[19]
As provided for in clause 7.