Petric Construction CC t/a A B Construction v Toasty Trading t/a Fursterburg Property Development and Others (123/09) [2009] ZAECPEHC 10; 2009 (5) SA 550 (ECG) (3 April 2009)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, Port Elizabeth
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, Port Elizabeth
>>
2009
>>
[2009] ZAECPEHC 10
|

|

Petric Construction CC t/a A B Construction v Toasty Trading t/a Fursterburg Property Development and Others (123/09) [2009] ZAECPEHC 10; 2009 (5) SA 550 (ECG) (3 April 2009)

FILING SHEET FOR EASTERN CAPE
JUDGMENTS
ECJ
NO :
123/09
ECD: 423/09
IN
THE HIGH COURT OF SOUTH AFRICA
(EAST
LONDON CIRCUIT LOCAL DIVISION)
PARTIES:
PETRIC
CONSTRUCTION CC t/a A B CONSTRUCTION
Plaintiff
And
TOASTY TRADING
t/a FURSTERBURG PROPERTY
1
ST
RESPONDENT
DEVELOPMENT
CONSTANTIA
INSURANCE COMPANY LTD
2
ND
RESPONDENT
SGI GUARANTEE
ACCEPTANCES (PTY) LTD
3
RD
RESPONDENT
REFERENCE
NUMBERS -
Registrar :
CASE
NO: 123/09 ECD: 423/09
DATE
HEARD:
17
March 2009
DATE
DELIVERED:
3
March 2009
JUDGE(S):
SANDI
J
LEGAL
REPRESENTATIVES -
Appearances:
for
the Applicant:
Adv.
Schultz
for
the Respondent:
Adv.
Lowe SC
Adv.
Cole
Instructing
attorneys:
Applicant:
Allams Attorneys
Respondents
: Gravet Schoeman
van Ransburg & Moodley
IN THE
HIGH COURT OF SOUTH AFRICA
EAST LONDON
CIRCUIT
LOCAL
DIVISION
CASE NO: 123/09 ECD: 423/09
Date
heard: 17/03/09
Date delivered:3/04/09
In the matter between:
PETRIC
CONSTRUCTION CC t/a A B CONSTRUCTION
APPLICANT
And
TOASTY TRADING
T/A FURSTERBURG PROPERTY
DEVELOPMENT
1
ST
RESPONDENT
CONSTANTIA
INSURANCE COMPANY LTD
2
ND
RESPONDENT
SGI GUARANTEE
ACCEPTANCES (PTY) LTD
3
RD
RESPONDENT
JUDGMENT
SANDI J:
[1]
On
30 March 2009 I issued an order in the following terms:
“
T
he
Rule is discharged with costs, such costs to include the costs of two
counsel.”
I intimated that my reasons would
follow. These are the reasons.
[2] By agreement between the parties,
on 17 February 2009 the following order was issued by a Judge of this
division:
“
1. That
a Rule Nisi issues herewith calling upon the Respondents to show
cause on 17
th
March 2009, why a final order should not be made in the following
terms:
The
Second Respondent and Third Respondent be and are hereby
interdicted and restrained from paying the First Respondent any

amount claimed by the First Respondent from the Second and/or Third
Respondent in terms of construction guarantee number 813550J,

issued by the Second Respondent on 30
th
August 2007 pending the final determination of the dispute between
the Applicant and the First Respondent, relating to the
validity
and legality of the First Respondent’s purported termination of
the principal building agreement entered into between
the Applicant
and the First Respondent on 16
th
May 2007.
The
First Respondent pays the costs of suit.
That
the provisions of paragraph 1.1 above shall operate as an interim
interdict with immediate effect.”
[3] The applicant seeks confirmation
of the
Rule,
which is opposed by the first respondent.
[4] The applicant, Petric Construction
CC t/a AB Construction, is a building contractor, and the first
respondent is a property
developer. The second respondent, Constantia
Insurance Company Ltd, is the company that issued a construction
guarantee in favour
of the first respondent. The third respondent,
SGI Guarantee Acceptance (Pty) Ltd, carries on business as management
underwriters
to the second respondent.
[5] The applicant seeks no order
against the second and third respondents and these respondents are
not opposing the relief sought
herein.
[6] On 16 May 2007 the applicant and
the first respondent entered into a written agreement for the
construction of a residential
development known as Furstenburg Grand
on a site situated at Nahoon Mouth in East London. The agreement is
embodied in a document
known as the Joint Building Contracts
Committee series 2000, Principal Agreement (“the JBCC agreement”).
As required by the
JBCC agreement, on 30 August 2007 the applicant
furnished a construction guarantee in the sum of R1 673 019. 43
issued on applicant’s
behalf by the second respondent. The
guarantee was issued in terms of clause 14 of the JBCC agreement.
[7] In the course of the building
operations disputes arose between the applicant and the first
respondent. On 19 January 2009 the
first respondent issued a default
notice to the applicant in terms of the JBCC agreement. On 4 February
2009 the first respondent
gave notice to the applicant cancelling the
JBCC agreement. Thereafter, and on 9 February 2009 the first
respondent demanded payment
of the construction guarantee from the
second respondent. Annexed to the letter of demand was the notice of
cancellation which
stated that the cancellation of the JBCC agreement
was due to default on the part of the applicant. On 11 February 2009
the applicant
disputed the first respondent’s entitlement to cancel
the contract and to obtain payment in terms of the construction
guarantee.
The dispute was communicated by the applicant to the
second respondent in writing. The applicant advised the second
respondent
that it had issued two notices of default to the first
respondent and that the first respondent had committed a material
breach
of the contract and that because of the breach the first
respondent was not entitled to cancel the agreement and to receive
payment
in terms of the construction guarantee.
[8] The second respondent advised the
applicant that, unless an interdict was obtained to prohibit payment
of the construction guarantee,
the second respondent would be obliged
to make payment to the first respondent. It was for this reason that
the present application
was launched.
[9] Prior to the obtaining of the
interim order the applicant and the first respondent had agreed that
all issues in dispute between
them would be referred to arbitration.
[10] The first respondent has raised
four points
in limine
.
The first point, relating to the
locus
standi
of the deponent to
the applicant’s founding affidavit, has been abandoned. In view of
the conclusion reached by me in this matter
I have decided to limit
this judgment to one of the points raised because it is, in my view,
determinative of the whole case.
[11] The point raised is that the
first respondent is entitled to payment by the second respondent of
the construction guarantee
by virtue of the fact that it has complied
with the conditions specified in the construction guarantee for
receiving such payment.
[12] It was submitted by counsel that
once the specified conditions set out in the construction guarantee
have been complied with,
the disputes raised by the applicant become
irrelevant and do not constitute a ground for non-payment or delaying
of payment. It
was submitted that the second respondent is obliged to
comply with the first respondent’s demand for payment.
[13] The construction guarantee number
813550J on which the applicant and the first respondent rely had been
extended to expire
on 31 March 2009. The Guarantee was given in terms
of the JBCC Contract 4.1: March 2005. In terms of clause 14.1 of the
JBCC contract
the applicant was obliged to furnish a construction
guarantee to the first respondent equal to 7.5% of the contract sum.
[14] Clause 5 of the construction
guarantee provides as follows:
“
5.0 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 Guarantor’s physical address
calling up this construction Guarantee, stating
that
:
5.1
The
Agreement has been cancelled due to 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 has been granted
against the Contractor and the Construction Guarantee
is called up in
terms of 5.0. The demand shall enclose a copy of the court order.
6.0 It
is recorded that the aggregate amount of payments required to be made
by the Guarantor in terms of 4.0 and 5.0 shall not
exceed the
Guarantor’s maximum liability in terms of 1.0 or 2.0.
7.0 Where
the Guarantor is a registered insurer and has made 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 expanded and shall refund the guarantor any
resulting surplus. All monies refunded to the Guarantor in terms
of
this Construction Guarantee shall bear interest at 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.”
[15] Further, clause 11.0 of the
Construction Guarantee provides that:
“
The
Construction Guarantee is neither negotiable nor transferable and
shall expire in terms of either 1.1.4 or 2.1, or payment in
full of
the Guaranteed Sum or on the Guaranteed expiry date, whichever is the
earlier,
whereafter
no claims will be considered by the Guarantor
.
The original of this Construction Guarantee shall be returned to the
Guarantor after it has expired.
12.0 This
Construction Guarantee, with the required demand notices in terms of
4.0 or 5.0, shall be regarded as
a
liquid document for the purpose of obtaining a court orde
r.”
[16] Mr Lowe SC, who together with Mr
Cole appeared for the first respondent, submitted that the first
respondent complied with
the provisions of clause 5 above: a written
demand was served on the second respondent stating that the first
respondent had cancelled
the agreement due to the applicant’s
default; that the construction guarantee was called up and a copy of
the notice of cancellation
was enclosed.
[17] Mr Lowe submitted that the
construction guarantee is analogous to the system of “irrevocable
documentary credits” as applied
by the banks generally. Counsel
submitted that the essential feature of irrevocable documentary
credits is the establishment of
a contractual obligation on the part
of the bank to pay the beneficiary under the credit which is wholly
independent of the underlying
contract (often between the buyer and
seller which assures the seller of payment of the purchase price
before he parts with the
goods, the subject-matter of the sale).
[18] Mr Lowe referred to
Loomcraft
Fabrics CC v Nedbank Ltd and Another
[1995] ZASCA 127
;
1996 (1) SA 812
(A)
.
In that judgment it was held at 815 H-J that:
“
The
unique value of a documentary credit, therefore, is that whatever
disputes may subsequently arise between the issuing bank's
customer
(the buyer) and the beneficiary under the credit (the seller) in
relation to the performance or, for that matter, even
the existence
of the underlying contract, by issuing or confirming the credit, the
bank undertakes to pay the beneficiary provided
only that the
conditions specified in the credit are met. The liability of the bank
to the beneficiary to honour the credit arises
upon presentment to
the bank of the documents specified in the credit, including
typically a set of
bills
of lading, which on their face conform strictly to the requirements
of the credit. In the event of the documents specified
in the credit
being so presented, the bank will escape liability only upon proof of
fraud on the part of the beneficiary.
At page 816C-D the following was said:
“
An
interdict restraining a bank from paying in terms of a credit will
accordingly not be granted at the instance of the buyer (the
bank's
customer) save in the most exceptional cases.”
However, if it is established that the
beneficiary was a party to fraud, the interdict will be granted.
See also
Phillips
and Another v Standard Bank of South Africa Limited and others
1985
(3) SA 301
(W); Ex Parte Sapan Trading (Pty) Ltd
1995 (1) SA 218
(W)
at 224I to 225G.
[19] Counsel also submitted that,
unlike a suretyship agreement, the construction guarantee is not
accessory to a principal obligation.
He submitted that in the present
matter the construction guarantee is independent of the JBCC
Contract.
[20] In
Basil
Reed (Pty) Ltd v Beta Hotels (Pty) Ltd and others
2001 (2) SA 760
(C)
the court also dealt with
an application involving the interpretation of the 1991 edition of
the standard form building contract
recommended by the Joint Building
Committee. In that matter the court held that the construction
guarantee was analogous to a suretyship.
However, a reading of the
court’s judgment in that matter shows that the court was dealing
with a different construction guarantee
from the one referred to in
this matter.
[21] Mr Schultz, for the applicant,
referred to clause 14.8 of the JBCC contract which provides as
follows:
“
A
security held by the employer in terms of 14.3 or 14.4 and 14.5 shall
be for the due fulfilment of the contractor’s liability
only and
the employer hereby waives all common law rights to recover from or
set-off against such security”.
Mr Schultz submitted that whether or
not there had been “due fulfilment” could only be determined once
an enquiry has been held
and a determination made that the applicant
is in default. He submitted that because the applicant and first
respondent have agreed
to refer their dispute to arbitration, the
first respondent should await the determination of the dispute by
that tribunal.
[22] I agree with the submission made
by Mr Lowe, namely that clause 14.8 deals with the “contractor’s
liability only” and
that the clause says the contractor’s rights
are governed by the contract and not the common law.
[23] In the present matter the
construction guarantee excludes the concept of an accessory
obligation. Paragraph 3.0 thereof states
the following:
3.0
The Guarantor hereby acknowledges that:
3.1 Any
reference in this Guarantee to the agreement is made for the purpose
of convenience and shall not be construed as any intention
whatsoever
to create
an
accessory obligation or any intention whatsoever to create a
suretyship.
3.2 Its
obligation under this guarantee is restricted to the payment of
money.”
[24] A further submission made by Mr
Schultz was that the first respondent was barred by the provisions of
clause 36.6 of the JBCC
contract from cancelling the agreement
because it had itself committed a material breach of contract.
[25] I have already referred to the
provisions of clause 7.0 of the construction guarantee which places
an obligation on the first
respondent to account to the second
respondent (the guarantor) in respect of payments received in terms
of the construction guarantee.
Surplus funds must be refunded to the
second respondent with interest.
[26] In the unreported case of
Federated Insurance
Guarantee Brokers (Pty) Ltd v Johannesburg Development Agency (Pty)
Ltd NPD Case no AR 9/8
a
similar argument was raised, but it failed. The Full Bench of that
division held that compliance with the provisions of clause
5 of the
construction guarantee rendered the guarantor liable to pay the
guaranteed sum. The clause referred to is similar to the
clause
quoted in paragraph 14 above.
[27] The alleged disputes between the
applicant and the first respondent are irrelevant to the construction
guarantee. Irrelevant
too is clause 36.6 of JBCC Contract which
prohibits cancellation of the agreement by the respondent on the
ground of a material
breach of the JBCC agreement. The second
respondent, the guarantor, is not taking part in these proceedings
and has not alleged
any reason why it should not pay the guarantee to
the first respondent. It is the applicant that invites the court to
go behind
the terms of the guarantee. The court cannot do so. The
parties to the guarantee are the first and second respondents. The
applicant
plays no part in it. In the
Federated
Insurance
case the
following was said at para 13:
“
As
to the contention that the Applicant could not call up the guarantee
in terms of clause 5 while there was a dispute about the
Applicant’s
entitlement to cancel the Contract in terms of clause 36, the
conclusion by Niles-Duner J that such a dispute was
not relevant to
the right to invoke clause 5 is also plainly correct. The parties to
the Guarantee are not the same as those to
the Contract. Once it is
accepted that clause 5 of the Guarantee contemplates immediate
payment to the Applicant once it has notified
the Guarantor that it
has cancelled, it is clear that, if after applying the provisions for
dispute resolution in the Contract,
it is found that the Applicant’s
cancellation was unjustified, the Applicant will have suffered no
loss and will be obliged to
refund the whole amount paid to it.”
[28] The first respondent complied
with the provisions of clause 5 of the construction guarantee, and
there being no evidence that
the first respondent committed fraud,
the second respondent is obliged to comply with the terms thereof.
[29] The guarantee expires on 31 March
2008 and, if the respondent is not paid on or before that date the
guarantee “expires whereafter
no claims will be considered by the
Guarantor”.
[30] In view of the issues involved in
this matter the employment of two counsel was a wise and reasonable
precaution.
[31] It was for these reasons that I
granted the order referred to in paragraph 1 above.
________________________
B. SANDI
JUDGE OF THE HIGH COURT
Appearances
Counsel for the Applicant: Adv.
Schultz
Attorneys for the Applicant: Allams
Attorneys
6 Sanson Road
Vincent
043 721 1018
5214
East London
Counsel for the Respondents: Adv.
Lowe SC
Adv. Cole
Attorneys for the respondents: Gravet
Schoeman van Rensburg & Moodley Inc.
4 Derby Road
Berea
5214
East London
043 721 1001