About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2017
>>
[2017] ZAGPJHC 272
|
|
All Teckline Contractors Incorporated v Mutual and Federal Insurance Company Limited (37706/15) [2017] ZAGPJHC 272 (18 September 2017)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 37706/15
Not
reportable
Not
of interest to other judges
Revised.
18/9/2017
In
the matter between:
ALL
TECKLINE CONTRACTORS
INCORPORATED
Applicant
And
MUTUAL
AND FEDERAL INSURANCE COMPANY
LIMITED
Respondent
MR
VATHASALLUM
REDDY
First
Third Party
POWER
NETWORK CONTRACTORS (PTY) LTD
Second
Third Party
JUDGMENT
NKOSI
AJ
INTRODUCTION
1.
The applicant seeks a money judgment for payment
of
R7 500 000, 00
cost and interest at 15.5 % per annum to be calculated from the 30
November 2012.
2.
The applicant’s claim is based on the so
called guarantee on demand issued by the Respondent in favour of the
Application.
BRIEF
BACKGROUND
3.
It is common cause that
3.1
Edison Jehamo Power Proprietary Limited (“EJP”)
concluded a written agreement with City Power ,Johannesburg to
perform
certain work on transmission lines (‘the City Power
contract”);
3.2
EJP subcontracted some of the work entailed by
the City Power Contract (“The subcontract”) to Quanta
International Limited
(“Quanta”).
3.3
It was a term of the subcontract that the
subcontractor would advance money to EJP to enable it to perform
certain work under the
main City Power contract.
3.4
It was a further term of the subcontract that the
repayment by EJP of the amount advanced to it by the subcontractor
would be secured
by a payment guarantee issued by a bank or an
insurer. In this instance, the Respondent, an insurance company.
3.5
Quanta then ceded and assigned its obligation
under the subcontract to the applicant who advanced a loan of
R12 500 000, 00
to EJP. The loan was secured by a payment guarantee issued by the
Respondent.
4.
It would seem EJP defaulted with the repayments
of the loan advanced to it. On 30 November 2012 the applicant
demanded payment of
R7 500 000, 00
under the guarantee from the Respondent. Payment as demanded was not
made and further demands were made on 28 March 2013 and 22
July 2013.
These subsequent demands did not yield the desired outcome.
5.
The Respondent, the first third party and the
second third party disputes the applicant’s claim for various
grounds which
I shall deal with later.
6.
The Respondent holds indemnities and suretyships
and has deemed it necessary to join the third parties on the basis of
their obligation
to indemnify the Respondent as a safety net in case
the Applicant succeeds in its claim against the Respondent .
7.
The counter indemnity entered into between the
Respondent and EJP reads ;
7.1
(EJP)
“
Do hereby indemnify and keep indemnified the
Insurance Company and hold it harmless from and against all and any
claims, losses,
demands, liabilities, costs and expenses of
whatsoever nature, (including legal costs as between attorney and
client) which it
may at any time sustain or incur by reason or in
consequence of having executed, or hereafter executing any
guarantee/s on my /our
behalf.
And I/we further undertake and
agree to pay to the Insurance Company on demand any sum or sums of
money which the Insurance Company
may be called upon to pay under the
Guarantees (together with interest thereon as hereinafter defined),
whether or not the Insurance
Company at such date shall have made
such payment, and whether or not we admit the validity or amount of
such claim against the
Insurance Company under the Guarantees. If we
dispute the validity of amount of any such claim we shall nonetheless
be obliged
to deposit the amount thereof with the Insurance Company,
on demand, pending adjudication or settlement of such dispute”.
8.
In addition to the counter indemnity there is a
deed of suretyship entered into between the Respondent and EJP (the
contractor)
and the first third party which reads inter alia ;
“
B
. The
Contractor has agreed to indemnify the Insurance Company (hereinafter
referred to as “the indemnity”) in terms
whereof it
undertook to keep the Insurance Company indemnified and to hold it
harmless from and against all and any claims, losses,
demands,
liabilities, costs or expenses of whatsoever nature which the
Insurance Company may sustain or incur by reason or in consequence
of
having executed or hereafter executing any Guarantees as aforesaid on
behalf of the Contractor”.
“
C
. I/We, the
undersigned, (hereafter referred to as (“Surety/Sureties”)
have agreed to bind myself /ourselves, as surety
/sureties for and
co-principal debtor/s jointly and several with the contractor to the
Insurance Company on demand of any amounts
which the Contractor may
by liable to pay to the Insurance Company under the Indemnity”.
9.
The first third party on his own also
signed the deed of suretyship which reads inter alia ;
“
I/We, the undersigned,
VATHASALLUM
REDDY
Identity
Number xxxxxx xxxx xx
Unmarried
Do hereby interpose and bind
myself/ourselves as surety/sureties for and co-principal debtor/s
jointly severally with the contractor,
in solidum for the due payment
by the contractor to the Insurance Company of all and any amounts
which the Contractor may be liable
to pay to the Insurance Company
under the indemnity, and further indemnify and keep indemnified the
Insurance Company and hold
it harmless from and against all and any
claims ,losses , demands, liabilities, costs and expenses of
whatsoever nature, including
legal costs as between attorney and
client which it may at any time sustain or incur by reason or in
consequence of having executed
or hereafter executing any Guarantee
on behalf of the contractor ,(together with interest thereon at the
prime overdraft rate of
ABSA Bank Limited, plus 2% to date of payment
by us)”.
10.
The third parties are disputing the liability of
the Respondent to the applicant as well as their liability to the
Respondent in
doing so they put forward these defences
1)
They allege that the suspensive condition
contained in clause 4(A) 2 of the subcontract (the agreement
concluding between EJP and
Quanta) was not fulfilled thereby by
rendering the subcontract invalid and unenforceable.
2)
They further contend that the payment guarantee
of
R30 000 000, 00
was never delivered and consequently the suspensive condition of the
cession and assignment agreement was not fulfilled.
3)
They further contend that the amount owing by EJP
is excessive and not the amount due and payable by EJP.
ISSUES
TO BE DETERMINED
11.
These are ;
11.1
Whether the applicant’s demand for payment
against the guarantee was strictly compliant with the terms of the
guarantee.
11.2
Whether the third parties have disclosed any
defence to the respondent’s claims for indemnification.
THE
LEGAL PRINCIPLE PERTAINING TO GUARANTEES
12.
There seems
to be no dispute amongst the parties regarding the applicable
principle pertaining to guarantees. It is common cause
that the
guarantee in issue is a so called on-demand guarantee. It creates a
self-contained and primary obligation between the
guarantor and the
beneficiary. It must be honoured by payment when a demand is made
that complies with the formalities as recorded
in the demand .The
guarantor may not refuse payment simply because it is not due
[1]
.
13.
In Lombard
Insurance company Ltd v Landmark Holdings (Pty) Ltd
[2]
,Navsa
JA held that ;
“
The guarantee by Lombard is
not unlike irrevocable letters or credit issued by banks and used in
international trade, the essential
feature of which is the
establishment of a contractual obligation on the part of a bank to
pay the beneficiary (seller). This obligation
is wholly independent
of the underlying contract of sale and assures the seller of payment
of the purchase price before he or she
parts with the goods being
sold. Whatever disputes subsequently arise between buyer and seller
is of no moment insofar as the bank’s
obligation is concerned.
The bank’s liability to the seller is to honour the credit. The
bank undertakes to pay provided
only that the conditions specified in
the credit are met. The only basis upon which the bank can escape
liability is proof of fraud
on the part of the beneficiary. This
exception falls within a narrow compass and applies where the seller,
for the purpose of drawing
on the credit, fraudulently presents to
the bank documents that to the seller’s knowledge misrepresent
the material facts”.
14.
A demand on
the guarantee must comply with the requirements of the guarantee for
it to be honoured
[3]
.In the absence of a demand made fraudulently and in bad faith
regardless of a dispute emanating from the underlying contract
[4]
the demand must be met. Generally fraud must be pleaded clearly
and distinctively. If fraud led to the conclusion of a contract,
(in
this instance, the making of a demand) cancellation may be
claimed
[5]
.
THE
RESPONDENT’S DEFENCE TO THE APPLICANT’S CLAIM
15.
The respondent submitted that all three demands
made by the applicant did not constitute a valid demand in terms of
the guarantee
.It argued that the terms of the guarantee which reads
;“…on written demand from Allteck …”
was not complied with. The demand was, however, in writing and on
Allteck’s letterhead. The letterhead speaks for itself;
it
confirms that the demand was made by the applicant. The Respondent’s
further argument that the Applicant demand ought
to have indicated
that the amount “is payable to Allteck in circumstances
contemplated in the subcontract”, cannot
be sustained. It is
clear from the applicant’s first letter of demand that it,
without a doubt, sought payment in terms of
the guarantee.
16.
The Respondent has not raised an issue about the
applicant’s letterhead for instance, the name of the company,
the company
registration number, the address of the company appearing
on the letterhead and the content of the letter of demand except that
the said letter does not states that the amount “is payable to
Allteck in the circumstances contemplated in the subcontract”.
The circumstances contemplated in the subcontract are clearly spelled
out in the Applicant’s letter of demand. The payment
to “us”
clearly refers to Allteck and no one else. There is no extrinsic
evidence required to establish who “us”
is .In my view
the demand for payment complies substantially and materially with the
requirements of the guarantee. I therefore
find that the refusal to
pay has no basis and that the Respondent is liable to pay the
applicant.
THE
THIRD PARTIES DEFENCE TO THE RESPONDENT’S CLAIM
17.
The applicant has raised an objection to the
second third party’s answering affidavit on the basis that it
is out of time
and that there is no condonation sought .In exercising
my discretion ,I have deemed it necessary to condone the late filing
of
the second third party’s answering affidavit.
18.
The third parties contend that the applicant’s
demand is not compliant with the guarantee. It further contends that
there
was fraud on the part of the applicant in making demand
pursuant to the guarantee. I have already made a finding with regard
to
the first contention of the third parties. I will therefore
continue to deal with the second contention of the third parties
which
relates to the issue of fraud. If I were to conclude that fraud
was indeed committed on the part of the Applicant, the effect thereof
would mean that the Respondent is not liable to the applicant and
accordingly the third parties not liable to the Respondent.
19.
The second third party asserts that the South African
Reserve Bank did not give the consent required in terms of the
condition precedent
contained in clause 4A.2 of the subcontract and
that there was no waiver by Quanta of the condition precedent in
terms of clause
4A.3 of the subcontract. It submits that the
subcontract was therefore not valid and enforceable. The first third
party makes similar
assertions. They both argue that the applicant
was fully aware of these assertions yet proceeded to make a demand
for payment.
The defences raised by the third parties are not
relevant to the Respondent’s claim against them.
20.
The defence
of fraud, if any, does not relate to the guarantee, indemnity or
suretyships. It questions the validity of the subcontract.
The legal
principle is clear as indicated in the case of Lombard which I have
already referred to, that
[6]
;
“
This obligation is wholly
independent of the underlying contract of sale and assures the seller
of payment of the purchase price
before he or she parts with the
goods being sold. Whatever disputes subsequently arise between buyer
and seller is of no moment
insofar as the bank’s obligation is
concerned”.
21.
In this case as well the obligation to pay is
wholly independent of the underlying contract. In the circumstances I
am inclined
to reject the defence of the third parties. I
consequently find that the third parties have raised no valid defence
to the Respondent’s
claim of indemnity.
ORDER
22.
I make the following order ;
1)
The respondent shall pay the applicant the amount
of
R 7 500 000, 00.
2)
The Respondent shall pay interest on the said
amount at the rate of 15.5% calculated from 30 November 2012 to date
of payment.
3)
The first and second third parties shall
indemnify the Respondent for payments made by the respondent to the
applicant pursuant
to this order and in terms of the suretyship and
counter indemnity entered into between the Respondent and the first
and second
third parties, respectively.
4)
The Respondent and the third parties shall pay
the applicant’s costs of this application which shall include
the costs of
two counsels
______________________
NKOSI,
AJ
For
Applicant : Adv. AM Smalberger SC
Adv.
KD Iles
Instructed
by : Werksmans Incorporated
For
Respondents : Adv. J Daniels
Instructed
by : Frese, Moll & Partners
For
First third Party : Adv. L Hollander
Instructed
by : Afzal Lahree Attorneys
For
Second Third Party : Adv. L Hollander
Instructed
by : Shannon Little Attorneys
Date
of Hearing : 04 September 2017
Date
of Judgment : 18 September 2017
[1]
Lombard insurance company Ltd v Landmark Holdings (Pty) Ltd
2010 (2) SA 86 (SCA)
[2]
Lombard (supra) para 20 also see Coface South Africa Insurance
Co Limited v East London Own Haven Housing association 2014
(2) SA
382 (SCA)
[3]
Denel SOC Ltd v ABSA Bank Ltd and Others
[2013] 3 All SA 81
(GSJ) at
[6]
[4]
Coface (supra)
[5]
W v W (2666/20160 [2016] ZAECGHC 73 at para 22 and 23 see also North
West Provincial Government v Tswaing Consulting CC [2007]
2 ALL SA
365 (SCA).
[6]
Lombard (supra)