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[2020] ZAGPJHC 445
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TDS Projects Construction and Newrak Mining JV (PTY) Ltd vs EXXARO Coal Mpumalanga (Pty)Ltd and Another (2020/14298) [2020] ZAGPJHC 445 (16 November 2020)
IN THE HIGH COURT
OF SOUTH AFRICA
(GAUTENG LOCAL
DIVISION, JOHANNESBURG)
Case
Number:
2020/14298
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED:
In the matter
between:
TDS PROJECTS
CONSTRUCTION AND NEWRAK
MINING JV (PTY.) LTD
APPLICANT
AND
EXXARO
COAL MPUMALANGA (PTY) LTD
FIRST RESPONDENT
AND
ABSA BANK LTD
SECOND RESPONDENT
JUDGMENT
LAMONT, J
1)
This is an application launched by the
applicant wherein it seeks an order interdicting the first respondent
from demanding payment
under a guarantee issued by the second
respondent, at the instance of the applicant, as security for the
applicant’s obligations
under an agreement concluded between
the applicant and the first respondent, and interdicting the second
respondent from making
payment under such guarantee.
2)
The applicant does so on the basis of:
2.1) The first
respondent’s demand under the guarantee being non-compliant
with the express wording of the guarantee, and
thus being fatally
defective; and
2.2)
The absence of any underlying indebtedness,
a jurisdictional prerequisite for a demand upon the guarantee, which
renders the first
respondent’s demand upon the guarantee
fraudulent.
3)
The first respondent opposes the
application on the basis that it’s demands were competent and
that such compliance deficiencies
as there may have been were
de
minimis.
4)
The first respondent launched a conditional
counter-application seeking that the applicant issue a new guarantee
in its favour and
be interdicted from interdicting a demand being
made upon the new guarantee.
5)
The applicant submits in response to the
counter-application that the dispute in the counter-application is
one that is subject
to arbitration and thus liable to be stayed
pending the referral thereof to arbitration and that there is a
dispute of fact which,
ordinarily, and but for the arbitration
provisions, would necessitate the matter being referred to trial. It
submits that, as arbitration
is the appropriate forum for the
determination of such dispute, a stay is the appropriate relief.
6)
The application contains an urgent
application which was dealt with separately save for costs which were
reserved. The parties agree
that those costs be costs in the cause in
the application before me.
7)
The first respondent submits that the
applicant is not entitled to raise the issue concerning the
non-compliance of the demand for
payment with the terms of the
guarantee for two reasons. First it is not part of the applicant’s
case and second as the applicant
is not a party to the contract in
terms of which the guarantee was issued it has no rights in that
contract.
8)
The
first respondent referred to the founding affidavit and submitted
that the paragraph setting out the reasons why the applicant
approached the court did not mention the defective demand notice.
This is true. However there are numerous references to the defective
demand throughout the affidavit which raise the issue squarely. The
fact that the applicant may have been remiss in its formulation
of
one paragraph does not limit the ambit of other paragraphs and the
evidence provided dealing with the issue. The affidavit is
to be
considered as a whole and the issues and evidence concerning the
distilled from it. See
Swissborough
Diamond Mines (Pty) LTD and Others v Government of the Republic of
South Africa and Others
[1]
where it was held
“
In
Heckroodt NO v Gamiet
1959 (4) SA 244
(T) at 246A--C and Van Rensburg
v Van Rensburg en Andere
1963 (1) SA 505
(A) at 509E--510B, it was
held that a party in motion proceedings may advance legal argument in
support of the relief or defence
claimed by it even where such
arguments are not specifically mentioned in the papers, provided they
arise from the facts alleged.
As was held in Cabinet for the
Territory of South West Africa v Chikane and Another
1989 (1) SA 349
(A) at 360G, the principle is clear but its application is not
without difficulty.”
9)
The first respondent submits that the
applicant has no rights to exercise in the guarantee contract to
which it is not a party.
It submits that while the law permits the
applicant to raise issues of fraud in the main construction contract
it does not permit
the applicant to raise issues concerning the
performance of obligations in the contract of guarantee. This attack
is directed to
the applicant’s challenge to the issue of
compliance of the demand with the terms of the contract.
10)
The law concerning the right to raise issues of fraud in the main
construction contract is settled. See for example Granbuild
cited
with some of the other authorities below.
“
[58] …
If, on a proper interpretation of the guarantee, the circumstances
entitling the employer to demand payment and
obliging the guarantor
to make it do not exist, the contractor has a clear interest in
interdicting payment, because the guarantor
will invariably have some
right of recovery against the contractor (here the
counter-indemnity). That this is an interest worthy
of protection by
way of an interdict has been taken for granted in a number of cases,
including by the Supreme Court of Appeal
in Zanbuild supra,
… Reference may also be made, by analogy, to cases dealing
with irrevocable documentary credits.
The issuing bank is required to
make payment to the beneficiary upon presentation of the documents
specified in the credit unless
the beneficiary’s demand is
fraudulent. It is recognised that the bank’s customer
(typically a purchaser of goods in
an international sale) may
interdict payment if the beneficiary makes a fraudulent demand
(see Loomcraft Fabrics CC v Nedbank
Ltd & Another
[1995] ZASCA 127
;
1996
(1) SA 812
(SCA)).
Fraud is, in such cases, the ground for the interdict, not the basis
of locus standi. The standing of the bank’s customer
in such a
case must derive from its recognised financial interest in preventing
payment of the credit contrary to the bank’s
legal obligation.
[59] Furthermore, a
construction guarantee is normally furnished pursuant to the terms of
a building contract. The contractor
has a direct contractual right
against the employer to prevent the latter from making demand under
the guarantee contrary to the
terms of the building contract.”
See
also:
Granbuild (Pty) Ltd v Minister of
Transport & Public Works, Western Cape & Another
[2015]
ZAWCHC 83
at paras 57-61;
KNS
Construction (Pty) Ltd v Genesis on Fairmont & Another
2009 JDR 0781 (GSJ) at paras 12-16;
Joint
Venture Between Aveng (Africa) (Pty) Ltd and Strabag International
GmbH v South African National Roads Agency Soc
Ltd
[2019] 3 All SA 186
(GP) at paras 115-120.
11)
The issue concerning the right to raise the noncompliance of the
demand with the terms of the guarantee was dealt with in the
State
Bank of India case which allowed the issue to be raised in similar
circumstances. See
State
Bank of India and another v Denel Soc Limited and others
[2]
,
it
was there held that :
“
[27]
I
should
mention
that
Counsel
for
the
appellants
did
question
the
locus
standi
of
Denel, to seek interdictory relief with
regard to the counter guarantees, as it was not
a party thereto. However, as explained
above, there is a banker-client relationship
between Absa and Denel in terms of which
Denel mandated Absa to issue the counter
guarantees
to
the
Indian
banks.
In
my
view,
this
contract
of
mandate
would
be
subject to an implied term that Absa would
only make payment to the Indian banks
in
circumstances where the demands of the Indian banks comply with the
terms of
the
relevant counter guarantees. From this it follows that Denel would be
entitled to approach the court for interdictory relief
if Absa were
to threaten
to
make payment of a counter guarantee, in circumstances where the
demand made
upon
Absa
is
non-compliant.
In
effect,
Denel
would
be
asking
for
specific
performance of the contract of mandate, in
the negative sense of non-performance
of
an act impliedly forbidden by the contract of mandate.”
12)
The first respondent submits “In
Petric
Construction CC t/a AB Construction v Toasty Trading
2009 (5) SA 550
(EC), the court held that a contractor, in the same
position as the applicant and as a non-party to the guarantee, has no
right
and is not entitled to restrain payment of a guarantee pending
resolution of a dispute relating to a contract. Petric Construction
has been consistently followed and applied in our courts, see
Dormell
Prop 282 CC v Renasa Ins Co Ltd NNO
2011
(1) SA 70
(SCA).”
Petric
does not consider the issue raised in the present matter and in the
State Bank of India
matter. Neither do the other SCA cases referred to by the first
respondent. I am bound by the authority of
State
Bank of India
and follow the ratio of
that authority.
13) The applicant
is entitled to raise the issue of the compliance or otherwise of the
demand with the terms of the performance
guarantee.
14)
The second respondent is obliged to “honour [the]
guarantee according to its terms” See
Edward
Owen Engineering Ltd v Barclays Bank International Ltd
[1978] 1 All ER 976
, the construction of the bond concerns a
construction of its terms, in which regard see
IE
Contractors Ltd v Lloyds Bank Plx and Rafidain Bank
[1990] 2 Lloyd’s Rep 496 (CA) at 501.The process of
construction was also recently fully explained in
Chisuse
and Others v Director-General, Department of Home Affairs and
Another.
[3]
15)
The second respondent’s role in dealing with the demand
made under the contract has been expressed in
OK
Bazaars (1929) Ltd v Standard Bank of South Africa Ltd
[4]
as
being:
“
[The
bank's] interest is confined to ensuring that the documents that are
presented conform with its client's instructions (as reflected
in the
letter of credit) in which event the issuing bank is obliged to pay
the beneficiary. 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. The
obligation of the issuing bank was expressed as follows in Midland
Bank Ltd v Seymour [1955] 2 Lloyd's Rep 147 at
151: ‘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. It is not for it to say: “This, that or the
other does not seem to us very much to
matter.” It is not for
it to say: “What is on the bill of lading is just as good as
what is in the letter of credit
and means substantially the same
thing”. All that is well established by authority
.
The bank must conform strictly to the instructions which it
receives.'”
16)
The terms of the guarantee require the demand to be in a particular
form. The relevant terms are to be found in the guarantee,
read with
the
Uniform Rules for Demand Guarantee ICC Publication No 758.
(“
URDG”) which are explicitly imported
by reference are clear, and require,
inter
alia
, that the:
16.1
Demand be supported by a statement indicating in what respect the
applicant was in breach of its obligations under the Contract;
16.2 Amount claimed be
due and payable;
16.3 Demand be made by
the first respondent; and
16.4
Signatory thereto warrant his authority to sign the demand “
Written
demands shall be signed by a person who warrants that he/she is duly
authorised to sign.”
16.5 Guarantee shall
expire on 19 June 2020.
16.6 The Guarantee is
subject to URDG.
17)
The URDG in Rule 15 provide:
“
a. A demand under
the guarantee shall be supported by such other documents as the
guarantee specifies, and in any event by a statement,
by the
beneficiary, indicating in what respect the applicant is in breach of
its obligations under the underlying relationship.
This statement may
be in the demand or in a separate signed document accompanying or
identifying the demand.
b. A demand under the
counter guarantee shall in any event be supported by a statement, by
the party to whom the counter guarantee
was issued, indicating that
such party has received a complaint demand under the guarantee or
counter guarantee issued by that
party. This statement may be in the
demand or in a separate signed document accompanying or identify the
demand.”
18)
Two separate notices of demand were
delivered to the second respondent. The first sent on 10 June 2020
reads:
“
WRITTEN NOTICE TO
GUARANTOR IN TERMS OF THE PERFORMANCE GUARANTEE ISSUED
BY THE ABSA BANK LIMITED
ON BEHALF OF TDS PROJECTS CONSTRUCTION AND NEWRAK
MINING JV (PTV) LTD
TRANSACTION REFERENCE
NUMBER: 175-02-0177727-G IN FAVOUR OF EXXARO COAL
MPUMALANGA (PTV) LTD
1. We refer to the
attached Letter of Guarantee dated 22 August 2018.
2. We, hereby, call on
you to now make payment to ourselves, in terms of your undertaking
contained in the attached Letter of Guarantee,
in the amount of R32
082 012.90 (thirty-two million and eighty-two thousand and twelve
rand and ninety cent) ("the Demand
amount').
3 . The Demand amount is
payable to us as a result of the Contractor's failure to perform in
terms of the Contract and its deemed
event of default, as per clause
32 of the agreement.
4. Payment should be
effected into the following account [detail omitted]:
5. Kindly acknowledge
receipt and address any further communications to the writer.
Yours faithfully
CKOORSEN
MANAGER, CAPITAL BUYING”
The second sent on 19
June 2020 reads:
“
2020-06-19
ABSA CORPORATE AND
INVESTMENT BANKING
A DIVISION OF ABSA BANK
LIMITED
(REGISTRATION NUMBER:
1986/004794/06)
15
TH
FLOOR
TOWERS NORTH 1E1
180 COMMISSIONER STREET
JOHANNESBURG
2001
Dear Sirs
WRITTEN NOTICE TO
GUARANTOR IN TERMS OF THE PERFORMANCE GUARANTEE ISSUED
BY THE ABSA BANK LIMITED
ON BEHALF OF TDS PROJECTS CONSTRUCTION AND NEWRAK
MINING JV (PTV) LTD
TRANSACTION REFERENCE
NUMBER: 17S-02-0177727-G IN FAVOUR OF EXXARO COAL
MPUMALANGA (PTV) LTD
1. We refer to our letter
of demand as well as the original performance guarantee reference
number 175-02-0177727-G delivered to
you by hand on 10 June 2020.
2. We confirm that the
original performance guarantee has been in your possession since 10
June 2020.
3. We furthermore refer
to our letter of suspension of the letter of demand dated 17 June
2020:
4. We hereby advise you
of the retraction of our instruction for suspension of our letter of
demand and hereby call on you to now
make payment to ourselves, in
terms of your undertaking contained in the Letter of Guarantee, in
the amount· of R22 165
055.66 (twenty two million one hundred
and sixty five thousand and fifty five rand and sixty six cent) ("the
Demand amount").
5. The Demand amount ls
payable to us as a result of the Contractor's failure to perform in
terms of the Contract and Its deemed
event of default, as per clause
32 of the agreement.
Yours faithfully
CKOORSEN
MANAGER, CAPITAL BUYING”
19)
Both demands contain the unsubstantiated averments that the demand
amount was payable “as a result of the applicant’s
failure to perform in terms of the Contract and its deemed event of
default…”. The requirement that the demand be
supported
by a statement indicating in what respect the applicant was in breach
of its obligations under the contract is not met.
Instead the demand
contains a conclusion of law unsubstantiated by the underlying facts.
20)
There was no statement in either demand that the amounts
claimed were due and payable, there are only the recordals that
the
amounts demanded were payable, the amount claimed in each demand
differs materially from the amount claimed in the other.
21)
There is no warranty of authority of the signatory. The fact
that the signatory identifies himself as “manager,
capital
buying” does not constitute a warranty, it is merely an
identification of his status as an employee.
22)
The guarantor is required to scrutinise the demand and only act in
accordance therewith if the terms of the contract are complied
with.
Hence the second respondent should refuse to pay as the two demands
are non-compliant with the requirements of the guarantee.
23)
After receipt of the first demand the second respondent represented
by its employee indicated that the demand was not
compliant and it
identified what the requirements which were to be met. The second
demand (19 June 2020) did not make the relevant
changes. This
notwithstanding, the second respondent represented by the same
employee on 22 June 2020 indicated it would make payment
pursuant to
the second demand. The second respondent has filed an affidavit
setting out that that employee was not authorised to
have made the
statement he did on 22 June 2020 and that it has always persisted and
continued to persist in its refusal to meet
the demand. As the
employee lacked authority the conduct of the employee in accepting an
obligation to pay was not binding on the
second respondent.
24)
The first respondent submitted that the Rules of URDG and in
particular Rule 24(e) required the second respondent to state
that it
regarded the demand as non-compliant and that as it had not done so
it could not now refuse to pay. The non-compliance
notice was issued
after the first but before the second demand was delivered. The facts
in my view demonstrate that although there
were two demands they
constituted one act of making demand. There was a suspension of the
claim for a time after the first demand
was made. The intention of
the second demand was to terminate the suspension and indicate that
second respondent was pursuing its
claim made in the first demand.
The first respondent had notified the first respondent of its
attitude that it would not pay after
the first demand and that
attitude remained until the unauthorised notification on 22 June 2020
that it would make payment. In
my view there is merit in the approach
of the second respondent that it had notified the first respondent
that it would not pay
and that it did not need to repeat the
notification after the second demand was presented for payment.
25)
As there was notice as required by Rule 24(e) of Rules of the
URDG the second respondent is entitled to refuse to make
payment.
26)
It is not necessary to deal with the allegations that the claim
is fraudulently made as the non-compliance with the contractual
obligations relating to the demand is dispositive of the matter.
27)
It remains to deal with the counter-claim. The first respondent
has set out that there is an agreement that a guarantee
be provided
by the second respondent. The allegations are disputed and there is
clearly a dispute of fact which it is not convenient
to resolve on
paper. In addition there is an arbitration provision geared to deal
with the dispute.
28)
It follows that the applicant’s application must succeed
and the counter-claim must fail. The costs relating to
the
counter-claim are insignificant. I include them as costs in the cause
of the costs of the main application. The costs of the
urgent
application are to be costs in the main application by consent.
29)
I make the following order:
1. The demands made on 9
June 2020 and 19 June 2020 by the first respondent upon the second
respondent requiring payment of the
guarantee issued by the second
respondent under reference number 175-02-0177727- G, are declared to
be invalid and of no force
and/or effect;
2. The
second respondent is interdicted and restrained from making payment
to the first respondent of any amount demanded
under the
guarantee
issued
by the
second
respondent
with
reference
number
175-02-0177727-G;
3. The counterclaim is
dismissed with costs to be costs in the cause of the applicant’s
application;
4. The costs of the
urgent application are to be costs in the cause of the applicant’s
application;
5. The second respondent
is to pay its own costs;
6. The first respondent
is to pay the costs of the applicant’s application including
all the costs referred to in paragraphs
3 and 4 above.
CG LAMONT
JUDGE OF THE HIGH
COURT
GAUTENG
LOCAL DIVISION, JOHANNESBURG
HEARD
ON:
02
November 2020
JUDGMENT
DELIVERED ON:
16 November 2020
APPEARANCES:
COUNSEL
FOR THE APPLICANT:
ADVOCATES A BESTER SC and DS HODGE
INSTRUCTED
BY:
TIEFENTALER ATTORNEYS INC.
COUNSEL
FOR THE FIRST RESPONDENT: ADVOCATES HC BOTHMA and N RAMBACHAN
NAIDOO
INSTRUCTED
BY:
DLA PIPER SOUTH AFRICA (RF) INC.
COUNSEL
FOR THE SECOND RESPONDENT:
ADVOCATE M DE OLIVEIRA
INSRUCTED
BY:
LOWNDES DLAMINI ATTORNEYS
[1]
1999
(2) SA 279 (T).
[2]
[2015]
2 All SA 152 (SCA).
[3]
2020
(6) SA 14
(CC).
[4]
2002
(3) SA 688
(SCA) at para 25.