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[2019] ZAGPPHC 97
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Joint Venture Between Aveng (Africa) Pty Ltd and Strabag International GmbH v South African National Roads Agency Soc Ltd and Another (8331/19) [2019] ZAGPPHC 97; [2019] 3 All SA 186 (GP) (22 March 2019)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
(1)
REPORTABLE:
No
(2)
Of
INTEREST TO OTHER JUDGES: No
CASE NO: 8331/19
22/3/2019
In
the matter between:
JOINT
VENTURE BETWEEN AVENG (AFRICA) PTY LTD
AND
STRABAG INTERNATIONAL GmbH
Applicant
and
SOUTH
AFRICAN NATIONAL ROADS
AGENCY
SOC
LTD
First
Respondent
LOMBARD
INSURANCE COMPANY LIMITED
Second
Respondent
JUDGMENT
MAKHUVELE
J
Introduction
[1]
The applicant, who I will henceforth refer to as ASJV instituted
urgent application
proceedings and sought the following relief;
‘
2. Pending the
outcome of dispute resolution proceedings to be instituted under the
provisions of the dispute resolution proceedings
agreed to by the
applicant and the first respondent (being based on the FIDIC Red Book
(1999 edition), with particular conditions
(“the contract”),
to be instituted by the applicant no less than 10 days from the date
of this order, an order interdicting
and restraining the respondent
from making a claim under:
2.1
the performance guarantee issued by Lombard Insurance Company Limited
in favour of the first
respondent on 8 June 2018 under guarantee
no:C2017/63909 (“the performance guarantee”); and
2.2
the retention money guarantee issued by Lombard Insurance Company
Limited in favour of the
first respondent on 8 June 2018 under
guarantee no: C2017/63910 (“the retention guarantee”)
(Collectively, “the
contract securities”)
3.
Declaring that any demand made by the first respondent on the second
respondent
is of no force and effect pending the outcome of the
aforementioned dispute resolution proceedings.
4.
Costs of this application against any respondent opposing this
application.
[2]
The matter came before FOURIE J and the following order was issued;
‘
1.
The matter is removed from the roll;
2.
Provided the applicant sets the matter down for hearing on Tuesday,
19 February
2019 at 10:00 or soon thereafter as counsel may be heard,
and the matter is heard that week, the first respondent undertakes
not
to make demand, pending judgment in respect of the application,
on the following:
2.1
the performance guarantee issued by Lombard Insurance Company Limited
in favour of
the first respondent on 8 June 2018 under guarantee no:
C2017/63909 (“the performance guarantee”); and
2.2
the retention money guarantee issued by Lombard Insurance Company
Limited in favour
of the first respondent on 8 June 2018 under
guarantee no: C2017/63910 (“the retention guarantee”).
3.
The issue of urgency is held over for determination by the court
hearing the
matter as referred to in paragraph 2, this court not
having made direction in that regard; and costs of this application
are held
over for determination in the hearing of this application’
Indeed,
the matter was set down for hearing in the week of 19 February 2019.
The parties were in agreement that the matter is urgent,
hence there
was no need for determination of urgency and I was satisfied that it
is indeed urgent.
[3]
I must say that the extent of the documents filed (1108 pages) would
ordinarily render
the matter not legible to be heard in the normal
roll, even though urgent. However, bulky as they are, the relevant
portions of
the documents for purposes of adjudicating the dispute
properly formulated constitute less than half of the documents
referred
to in the affidavits and filed of record. At the hearing of
the matter it became clear that the only relevant parts were the
affidavits,
correspondence exchanges as well as those parts of the
building contract that deal with specific issues relating to the role
of
the Engineer, termination of the contract and consequences
thereof.
[4]
The first respondent, who I shall refer to henceforth as SANRAL or
Employer, is opposing
the relief sought. The second respondent, who I
shall henceforth refer to as LOMBARD does not oppose the matter but
has filed an
affidavit to explain the nature or categorization of the
guarantees.
[5
]
The legal position in South Africa is that in the absence of
allegations of fraud, the contractor is not entitled to challenge
payment
of construction guarantees, even where there are contractual
disputes in terms of the building contract.
[6]
The ASJV in this matter seeks to interdict payment on the basis that
SANRAL must first
comply with the terms of the building contract
before it can present the guarantees for payment.
[7]
It is common cause that this argument constitute what is known as
underlying contractual
dispute, which, according to South African
courts is not part of our law. It is however, part of
Australian law. Cloete JA
in the matter of
Kwikspace
Modular Buildings Ltd v Sabodala Mining Co SARL and Another
2010 (6)
SA 477
(SCA
)
[1]
summed up the position as follows;
[11]
It therefore seems to me that it can be said with sufficient
certainty that Australian law is to the following effect: a building
contractor may, without alleging fraud, restrain the person with whom
he had covenanted for the performance of the work, from presenting
to
the issuer a performance guarantee unconditional in its terms and
issued pursuant to the building contract, if the Contractor
can show
that the other party to the building contract would breach a term of
the building contract by doing so; but the terms
of the building
contract should not readily be interpreted as conferring such a
right.
[12]
I expressly refrain from considering whether, in view of the decision
of this court in Loomcraft Fabrics CC v Nedbank
Ltd &
another
14
(which
dealt with a letter of credit) and the English decisions referred to
therein, in particular the decision of the English
Court of Appeal
in Edward Owen Engineering Ltd v Barclays Bank International
Ltd
15
(where
Lord Denning MR
16
and
Browne LJ
17
both
said that a performance guarantee is akin to a letter of credit),
there is any room for a contention that the position
in South Africa
should be the same as in Australia. So far as Australian law is
concerned, English authority to the contrary notwithstanding,
the
Federal Court of Australia held as recently as 2008 in Clough
Engineering:
18
‘
[22]
To sum up: as a matter of law in Australia, a building contract can
contain provisions enforceable at the suit of the contractor
which
amount to preconditions to, and therefore limit, the right of the
beneficiary of an unqualified performance guarantee to
present it to
the issuer. But even assuming in favour of the Contractor in this
case that GC 5.5 requires the Principal to have
an enforceable right
under the contract before it is entitled to present the guarantees
issued by Nedbank, it had such a right
which it was entitled to
assert; and no tacit term is to be incorporated into GC 5.5 obliging
the Principal, in its notice to the
Contractor required by that
clause, to set out the grounds on which the demand will be made.
[9]
The contentions before me relate to the question as to whether the
void or lacuna
that was left by Cloete J has now been answered, thus
changing the position with regard to independence or autonomy of the
construction
guarantees. The extension of this argument is that our
courts are not oblivious of this issue and have instead made rulings
to
the effect that a contractor is by right entitled to interdict the
employer from presenting guarantees for payment. Unfortunately
the
authority that the ASJV relies on is just an order without written
reasons for the judgment. It does not appear like there
is any
written judgment because there was no response to the challenge.
[10]
Counsel for the ASJV contends that indeed the void has been filled.
He referred
to the judgment of the Queen’s
Bench in the matter of Simon Carves Ltd v Ensus UK Ltd
[2011] EWHC
657
(TCC) para 33 where it was held that the beneficiary
of a contract security bond can in principle be restrained from
making a demand under the bond if the underlying contract makes
express provision for that. It also makes reference to legal academic
writing of Charl Hugo; Construction Guarantees and the Supreme Court
of Appeal 2010-2013, essays in honour of Frans Malan, Lexis
Nexis,
p168/170 to support the proposition that a contractor can obtain an
interdict against an employer to prevent demand for
payment of a bond
of security, if doing so would breach a term of a building contract.
This, according to applicant and authorities
relied on, would not
offend the principle of independence of the guarantee.
[11]
On the other hand, Counsel for SANRAL maintained that this is not
part of our law and that the legal
precedents have not developed
beyond the lacuna that was left by Cloete JA.
[12]
The second respondent filed an affidavit and indicated that it will
abide the decision of the court,
however, it also offered to give an
opinion on the nature of the guarantees
.
[13]
The parties are in agreement that it is not necessary for the
court to make a determination
with regard to whether the guarantees
are on-demand or conditional (suretyship) bonds.
Background
facts and basis for the relief sought
[14]
The ASJV comprises of an unincorporated joint venture between a South
African and German registered
companies known as Aveng and Strabag
International GmbH. It was awarded a tender by SANRAL for the
construction of the Mtentu River
Bridge on the N2 Wild Coast Toll
Road.
[15]
The parties entered into a construction contract in the form of a
FIDIC Red Book (1999 Edition).
[16]
As is usual practice with construction contracts, the ASJV was
required to provide SANRAL with
guarantees for proper performance of
the works as well as for rectifying any defects on the works actually
executed. These are
known as performance and retention money
guarantees.
[17]
The total value of the contract was One Billion, Six Hundred and
Thirty Four Million, Nine Hundred
and Ninety Six Rand (R1,
634,996.00).
[18]
The applicant was required to provide fifteen percent (15%) of the
contract value as guarantee
for proper performance of the works and
ten percent (10%) thereof as retention money guarantees.
[19]
The respective guarantees amounted to Two Hundred and Fourty
Five Million, One Hundred
and Twenty Thousand, Eight Hundred and
Fourty Nine Rand and Fourty Cents (R245,120,849.40) and Eighty
One Million Seven Hundred
and Six Thousand Nine Hundred and Fourty
Nine Rand and Eighty Cents (R81 769 49.80).
[20]
The undertaking in respect of the guarantees was made by LOMBARD, and
as is usual practice, the
applicant also signed counter-guarantees in
favour of LOMBARD which would entitle it to recover from the
applicant any amount it
would paid to SANRAL in the event of a claim.
Each of the applicant, being an unincorporated joint venture provided
its separate
fifty percent (50%) share of the counter-guarantees to
Lombard.
[21]
The ASJV contends that it has validly cancelled the building contract
due to a state of Force
Majeure that persisted for eighty four (84)
days. It contends further that in terms of the contract, there are
certain prescribed
steps that must be followed before SANRAL can
lawfully present the performance guarantees to LOMBARD for payment.
[22]
It is further contended that SANRAL would be committing a breach of
the building contract if
it were to be allowed to present the
guarantees for payment without following the prescribed procedure in
the building contract,
namely, consequences for termination of a
contract as a result of a state of Force Majeure.
[23]
SANRAL contends that the underlying contract dispute is not part of
South African law, and as
such, it is not prohibited from presenting
the guarantees for payment whilst the parties are resolving whatever
contractual dispute
may be existing between them.
[24]
To the extent that the ASJV is relying on termination of the contract
on the basis of Force Majeure,
SANRAL contends that the purported
termination is invalid because there was no state of Force Majeure.
[25]
As it will be seen hereunder, SANRAL did not accept the termination.
Instead, it had, through
the Engineer, issued an instruction to the
ASJV to withdraw the termination and return to the site, failing
which it indicated
its intention to cancel the contract on the basis
of the ASJV’s repudiation thereof. The ASJV refused to withdraw
the termination
of the contract and indicated its intention to
approach the court to assert its rights. SANRAL was requested to make
an undertaking
that it was not going to call up the guarantees
without first giving the ASJV a fourteen day notice thereof. However,
this was
rejected, and a threat was issued that a demand would be
made. This prompted the launching of the current proceedings on an
urgent
basis as indicated above.
Chronology
of events leading to the respective disputed rights to cancel the
building contract
[26]
The parties have filed the usual three sets of affidavits, namely,
founding, answering and replying
affidavit. In its answering
affidavit, SANRAL has indicated its understanding of the applicant’s
case and also highlighted
the sequence of events leading to the
disputed termination of the contract. However, it appears from
the replying affidavit
that the ASJV challenges SANRAL’s
presentation of the facts. The replying affidavit is replete with
‘corrections’
of the sequence of events.
[27]
This, in my view is not a real dispute because, save for what could
have been discussed in the
meetings, the essence of the dispute
before me appears from the correspondence that was exchanged between
24 October 2018 and early
February 2018 when the SAJV terminated the
contract, the validity of which is disputed.
[28]
Therefore, I deem it necessary to refer to the correspondence because
the letters speak for themselves.
Thereafter, I will deal with the
relevant parts of the building contract.
[29]
On 24 October 2018, the ASJV addressed a letter to SANRAL and
notified what it referred to as
stoppage of works to ‘North/South
Site” due to ‘Third Party disruption’. The
disruption of work had occurred
on 22 October 2018 after a group of
people stormed the site and demanded to address management and the
workforce directly, and
not through the usual channels of
communication, being the Public Liaison Officer (PLC).
[30]
According to this letter, this work stoppage happened in the presence
of the police, who were
notified a day before after the ASJV received
information of the imminent disruptions. Affidavits filed with the
police were attached
to the letter. There is also a photo album
depicting the protesters, unlicensed firearms seized by the police
and one identified
person bearing a firearm. Subsequent to the
invasion of 22 October, the ASJV received threatening emails from a
group that called
itself ‘Practical Radical Economic
Transformation’.
[31]
After detailing the events of 22 October 2018, the letter concluded
as follows;
‘
Due to the
delay event and to protect our contractual position, the Contractor
gives notice of its intention to submit a claim for
‘Extension
of the Time for Completion of the Works and Cost in accordance with
Sub-Clause 20.1 of the Contract. The event
conforms to the definition
of Force Majeure as per Sub-Clause 19.1 of the Contract’.
[32]
A follow-up letter was addressed to both the Engineer and SANRAL on
31 October 2018 to advise
that the disruptions were ongoing and that
the ASJV regard them as Force Majeure.
[33]
In this letter, the ASJV indicated that it was going to continue with
execution of works that
‘
are not prevented and/or are
capable of being executed off the Site’
. This was
identified as amongst others ‘
administration ‘
and
‘
procurement and logistics’
.
[34]
Photographs depicting the unrest and protest of 30 October 2018 were
attached. These depicted
protesters blocking the main access route,
billowing smoke from burning trees, firearms seized by the police as
well as what
has been described as police restraining the protesters.
[35]
The Engineer wrote to the ASJV on 02 November 2018 and referred to a
meeting that was held between
the Contractor (the ASJV) and SANRAL on
31 October 2018 where it was ‘
mutually agreed that the
progress of the Works be suspended’.
[36]
The Engineer recorded in the letter that the suspension is in terms
of Sub-Clause 8.8 and was
as a ‘
result of the disruption of
the works caused by the community and other groupings, as notified by
yourself in other correspondence’.
The suspension was
indicated to cover the period from 22 October to 09 November 2018.
[37]
The ASJV addressed another letter to the Engineer on 07 November 2018
which appears to challenge
the latter’s categorization of the
cause of suspension of works as ‘
disruption of the works
caused by the community and other groupings, as notified by
yourselves in other correspondence’
. The ASJV maintained
that the events that led to the suspension of works constituted
‘
Force Majeure’
.
[38]
The letter also recorded that as a consequence of the Engineer’s
suspension in terms of
Sub-Clause 8.8, the ASJV would suffer delays
and /or incur Costs, and as such, it was entitled to an extension of
time and payment
of costs in terms of Clause 20.1 of the Contract.
The ASJV also indicated its intention and notice to rely on Clause
2.1 (Right
of Access) for its claim for an extension of time and
costs in the event that the Engineer and SANRAL would dispute that
the events
constitute ‘Force Majeure’.
[39]
The Engineer wrote to the ASJV again on 13 November 2018 and referred
to a meeting of 09 November
2018 to confirm a further suspension of
works from 09 November to 16 November 2018. No further details were
given.
[40]
The ASJV replied to the further suspension of works by letter dated
13 November 2018. The letter
also addressed safety concerns and
identified specific issues that SANRAL should address to ensure a
safe environment before works
could resume.
[41]
On 15 November 2018 the ASJV addressed a further letter to the
Engineer and SANRAL and advised
them about a threatening email it had
received from PRET. This organization was opposed to resumption of
works at a site identified
as ‘
Southern site in Kwakhanyayo
whilst negotiations are still ongoing’
. Threats to the
lives of people were made.
[42]
The ASJV also requested feedback on the concerns it had raised in an
earlier letter and also
reiterated its view that the environment was
not conducive for it to perform its contractual obligations.
[43]
The ASJV submitted its Claim No.6 to the Engineer and SANRAL on 30
November 2018 in terms of
Sub-Clause 20.1 of the Contract. The
claim is titled ‘
Stoppage and Suspension of Works due to
Civil Unrest by Third Parties’.
The letter also made a
request to the Engineer for a determination ‘
in accordance
with Sub-Clause 3.5 of the Contract’.
[44]
The suspension of works was extended from 17 November to 30 November
by letter dated 30 November
2018 from the Engineer to the ASJV. Save
for reference to a meeting that was held on 09 November and recent
developments which
were not explained, the letter did not give
further details.
[45]
The ASJV replied to the further extension of the suspension of works
on 01 December 2018. It
raised concerns about the retrospective
suspension and intentions of the Engineer with regard to resumption
of the works. It recorded
that conditions had not changed to enable
it to resume works on 03 December 2018 because issues that led to the
Force Majeure had
not been addressed despite several meetings held.
[46]
The suspension of works was extended further by letter from the
Engineer dated 03 December 2018
.
As usual, it was with
retrospective effect, from 01 December to 07 December 2018.
[47]
The Engineer addressed a letter to both the ASJV and SANRAL on 06
December 2018 and referred
to Claim No.6 from the ASJV. The claim was
evaluated against the sequence of events as indicated in the
preceding correspondence.
The Claim for an extension of time and
costs for the period of suspension was approved, but it appears from
the letter that the
Engineer relied on Sub-Clause 8.9 of the
Contract.
[48]
The Engineer concluded the letter by making the following
determinations, apparently in terms
of clause 3.5 of the Contract;
‘
The claim for
an extension of time of 30 working days (1.32 months) from 22 October
2018 to 30 November 2018 is approved.
The claim for Costs
for the amount of R36 937 730.30 is not approved as these Costs are
still under review.
Final Costs will be
determined once the event has ended. An interim payment in terms of
Sub-Clause 20.1 [Contactor’s Claims]
paragraph 9 of the
Conditions of Contract for Costs will be made as reflected in Works
Authorisation No 11’
[49]
The suspension of progress of the works was further extended from 08
December to 15 December 2018 by
letter dated 11 December 2018 from
the Engineer to the ASJV. The reasons appear to be the initial issues
and the previous meetings
on the matter.
[50]
In its letter dated 13 December 2018 the ASJV noted the further
extension of suspension of works
from 11 December and the instruction
to resume on 15 December 2018 but reiterated that the instruction ‘
is
not capable of being implemented ‘
because it was still
being ‘
prevented from performing all of its Site-related
obligations under the Contract as a result of the civil commotion and
unrest which
have occurred since 22 October 2018 on the Site and the
access routes to the Site’.
[51]
The ASJV addressed another letter to the Engineer on 14 December 2018
and referred to the latter’s
interim decision with regard to
its Claim 6, particularly the acceptance thereof on the basis of
Clause 8.9 of the Contract. It
was noted that one of the claims was
accepted on the basis of the notified Force Majeure.
[52]
It was further reiterated that the Engineer has not rejected or
denied that the events that formed
the subject matter of the claim
constituted a Force Majeure and that the ASJV was entitled to claim
in terms of Sub-Clause 19.4
of the Contract.
[53]
The ASJV concluded the letter by reiterating that its decision not to
challenge the Engineer’s
interim evaluation of the claim should
not be construed as acceptance that the events do not constitute
Force Majeure and that
it is not entitled to an extension of time and
claim for costs in terms of Sub-Clause 19.4 of the Contract.
[54]
On 11 January 2019 the Engineer wrote another letter to the ASJV and
confirmed a further suspension
of the works from 15 December to 13
January 2019. Except for reference to previous correspondence, no new
reasons were provided
for the decision. On the same day (11 January
2019), the Engineer addressed a further letter to the ASJV and
referred to a community
meeting that was held on 08 January 2019
‘
where a resolution was reached that work could resume on
the Mtentu Bridge Site from Monday 14 January 2019’.
[55]
The ASJV was advised that the ‘
suspension period shall end
on 13 January 2019 (inclusive) and progress of the works shall resume
on 14 January 2019’.
[56]
The ASJV replied to this letter on the same day (11 January 2019).
Amongst other issues, it maintained
its earlier stance that ‘
the
Force Majeure event cannot be considered to have come to an end until
such time as the conditions on Site have been established
to the
point where the Works can resume without continued or persistent
endangerment of personnel or interruption of activities
‘.
[57]
An invitation was extended to the Engineer to engage with the ASJV to
‘
ascertain the current status of the force majeure event and
to formally agree on the next steps to be taken’.
[58]
On 13 January 2019 the Project Manager extended an invitation to the
parties to attend what was
referred to as a ‘
formal welcome
for the Contractor back onto the site’
meeting that had
been arranged by the new PLC (Public Liaison Officer). The ASJV
replied to the invitation of 14 January and agreed
to attend the
meeting but recorded that its attendance should not be construed ‘
as
a resumption of works as it has not yet been established that the
Site is safe’.
[59]
It appears from a letter dated 15 January 2019 from the Engineer to
the ASJV that the latter
did not resume works as instructed on 11
January 2019. The letter made reference to a meeting that was held on
08 January 2019
which the ASJV was alleged to have refused to attend.
In this meeting, the issues that led to the suspension of the works
were
apparently ‘
overcome’
.
[60]
It was further alleged that a representative of the ASJV attended the
welcome meeting that was
held on 14 January 2019, but that they
refused to resume work as instructed ‘
until the issues with
the Employer had been attended to and therefore the required joint
examinations could not take place’.
[61]
The Engineer concluded the letter by making reference to Clause 3.3
of the Contract (Instructions
of the Engineer) which obliges the ASJV
to comply with an instruction. The ASJV was instructed to ‘
rectify
the situation as the Contractor is not entitled to ignore such an
instruction’.
[62]
The ASJV replied to the Engineer’s letter on 16 January 2019
and outlined the sequence
of events, the community meetings and
correspondence exchanged. It reiterated its stance that the events
that led to the notified
Force Majeure subsists and consequently it
was ‘
unable to resume works on Site’.
[63]
The ASJV concluded the letter by stating that “
Given the
Force Majeure event has already subsisted for a continuous 84 day
period, the Contractor is entitled to terminate the
Contract and
reserves its rights to do so. That notwithstanding and with the
objective of engaging on what is an important issue
for both the
parties and indeed other stakeholders, the Contractor invites SANRAL
to engage with it, on a without prejudice basis’.
[64]
It appears from a reminder letter that was sent by the ASJV on 18
January 2018 to both the Engineer
and SANRAL that both did not
respond to the ASJV’s letter of 16 January 2019.
[65]
The Engineer replied on 18 January 2019 and disputed the allegations
that the events that led
to suspension of the works were still in
existence. Reference was made to stakeholder meetings where the
issues were allegedly
resolved. The Engineer undertook to supply
SANRAL’s response on the 16 January 2019 letter.
[66]
The ASJV replied to this letter on 21 January 2019 and noted the
reassurance that SANRAL would respond
to its letter of 16 January
2019. It went on to address the Engineer’s insistence that the
conditions that led to suspension
of works were no longer in
existence. The SJV did not agree with this assessment and reiterated
its stance that Force Majeure has
occurred and was continuing.
[67]
SANRAL addressed a letter to the ASJV on 21 January 2019 and replied
to its letters of 11 January
2019, 13 January 2019 and 16 January
2019.
[68]
With regard to the 13 January 2019, SANRAL’s response was that
the works were suspended
on its instructions by the Engineer in terms
of Clause 8.8 of the Conditions of Contract because of ‘
our
shared concern for the safety of all staff on the Mtentu Site’
.
SANRAL went on to dispute the ASJV’s contention that the event
was a Force Majeure. It outlined the sequence of events and
the
meetings held with the protesters and the community, which apparently
the ASJV refused to attend. This refusal by the ASJV
to attend
meetings, SANRAL contended, contributed to delays in resolving the
impasse. Furthermore, SANRAL disputed the allegations
about safety
concerns because according to it, all persons, including the Engineer
and Contractor’s personnel travelled safely
to attend the
welcome back meeting of 14 January 2019.
[69]
The ASJV’s letter of 13 January 2019 contained a list of
requirements that SANRAL was asked
to attend to in order to render
the Site safe for resumption of works. SANRAL addressed these issues
and reiterated the steps that
had been taken or were going to be
followed up. It appears from the response that in SANRA’s view
the issues were no longer
a hindrance to resumption of works.
[70]
With regard to the letter of 16 January 2019, SANRAL agreed with the
Engineer that the ASJV had
failed to resume works as instructed.
SANRAL reserved its right under the Contract, ‘
including
termination’
. It accepted the invitation for further
interactions and in this regard it undertook to make arrangements for
a meeting.
[71]
ASJV replied to this letter on 23 January 2019, but did not address
the substantive issues in
view of the meeting that was to take place.
[72]
On the same day (23 January 2019), SANRAL addressed a letter to the
ASJV and forwarded ‘
formal resolutions made at the community
meeting held at Jama village with petitioners and other stakeholders
on 09 January 2019’.
[73]
It appears from a letter from the Engineer dated 28 January 2019
addressed to the ASJV that the
planned meeting between the parties
did take place on 25 January 2019 and that the latter indicated that
it ‘
had no intention to return to site and continue with
progress of the Works’.
[74]
The Engineer concluded this letter by invoking the provisions of
Sub-Clause 15.1 of the Contract
and gave notice to the ASJV ‘
to
make good the failure to resume the progress of the Works, within 7
days’.
[75]
SANRAL addressed a letter to the ASJV on 28 January 2019 and referred
to the discussions at the
meeting that was held on 25 January 2019,
particularly its stance that the conditions that led to suspension of
works were no longer
in existence and that the SAPS would address the
safety concerns going forward.
[76]
SANRAL ended the letter by stating that it was ‘
not in
support of ‘consensual ‘termination and will not enter
into any discussions to allow the ASJV to walk away from
their
contractual obligations. This is a position we stated very clearly at
the meeting of 25 January 2019, which your correspondence
of the same
date unfortunately does not acknowledge. SANRAL believes the
Contractor has no option but to return to site and to
resume work
immediately as instructed by the Engineer. Should the Contractor
continue to refuse to return to site SANRAL will have
no option but
to follow the procedure laid out in Clause 15 of the Conditions of
Contract’
[77]
The ASJV responded to this letter on 30 January 2019 and referred to
the discussions in the meeting
of 25 January 2019 and the subsequent
letter from the Engineer wherein an instruction was given to it to
resume works within 7
days, failing which a threat was made to invoke
the provisions of Clause 15.1. It expressed its reluctance to comply
with the instruction
because in its view the state of Force Majeure
was still in existence and it viewed the instruction as having an
effect of exposing
its personnel to material risk of harm or death.
[78]
It was furthermore contended that the ASJV was entitled to ‘
a
release from performance of the Contract under Law as contemplated
under Sub-Clause 19.7 (Release from Performance under Law).
This
right is independent of, and additional to, the Contractor’s
right under Sub-Clause 19.6 [Optional Termination, Payment
and
Release]’
[79]
The letter ended with the ASJV giving notice of termination of the
Contract. The relevant parts
read as follows;
‘
Accordingly;
1.
The
Contractor hereby gives notice of termination of Contract to
the Employer in terms of and pursuant to Sub-Clause 19.6
[Optional
Termination , Payment and Release], with the
a.
execution
of substantially all the Works in progress having been
prevented for a continuous period of 84 days by reason of
Force
Majeure of which notice was given under Sub-Clause 19.2 [Notice of
Force Majeure]; and
b.
termination
to take effect 7 days after this notice.
2.
In
addition to paragraph 1,the Contractor hereby, pursuant to Sub-Clause
19.7 [Release from Performance Under Law] , gives notice
to the
Employer that:
a.
there
has been and continues to be a material risk and threat of violence,
unrest and disorder at and/or in the immediate vicinity
of the Site
with resultant indefinite risk to life and safety of personnel;
b.
the
Contractor is not permitted under Law or the Contract itself, to
knowingly expose personnel to a material risk of harm or death
by
persons acting unlawfully;
c.
the
complex and technical nature of the Works affords no margin for
disruptions in the form experienced and expected; and
d.
the
threat of violence, unrest and disorder at and/or near in the
immediate vicinity of the Site and the related events and
circumstances,
as more fully detailed above and in the Contractor’s
numerous communications to date, effectively render the continued
execution
of the Works impossible and /or unlawful, in particular
within the next 5 days, as required by the 15.1 Notice (the said
notice
having been given on Monday 28 January 2019).
The above event or
circumstances is outside the control of the Parties and makes it
unlawful, alternatively impossible, for the
Contractor to fulfil its
contractual obligations.
The Contractor, having
given this notice, is (i0 entitled to be released from further
performance of the Contract in accordance
with and as contemplated
under Sub-Clause 19.7 [Release from Performance under Law]; and
(ii) discharged from further performance.”
[80]
The ASJV addressed another letter to SANRAL on 30 January 2019
subsequent to this termination
notice and suggested a meeting to
discuss management of the post-termination process. It further
requested SANRAL to make an undertaking
not to make a demand on the
securities provided in terms of the Performance and Retention
guarantees without first giving a 14
days’ notice of the
intention to do so. The request was based on its stance that SANRAL
was, in its view, not entitled to
make the demand.
[81]
A further letter was addressed to SANRAL on 31 January 2019, calling
on it to agree to a post-termination
management process and to give
an undertaking as requested in the 30 January letter. The letter
provided a basis for the view that
SANRAL was not entitled to make a
claim against the guarantees and these were (a) that the Retention
Money Guarantee was intended
to serve as security for defects in the
works actually carried out; and (b) SANRAL’s right to call up
the Performance guarantee
is regulated by Sub-Clause 4.2 and limited
to the circumstances listed therein, namely; (i) failure by the
Contractor to extend
the validity of the Performance security; (ii)
failure by the Contractor to pay the Employer an amount due, as
agreed or determined
; (iii) failure by the Contractor to remedy a
default within 42 days after receiving the Employer’s notice in
that regard;
and (iv) circumstances entitling termination by the
Employer in terms of Sub-Clause 15.2.
[82]
The ASJV further contended that SANRAL or the Engineer must first
give notice in terms of Sub-Clause
2.5 if the latter considers itself
entitled to any payment under or in connection with the Contract.
Thereafter, the Engineer is
obliged to proceed in accordance with
Sub-Clause 3.5 of the Contract and make a determination of the amount
that SANRAL would be
entitled to.
[83]
SANRAL addressed a letter to the ASJV on 04 February and disputed its
rights and basis to terminate
the contract in terms of Sub-Clause
19.6 of the FIDIC Red Book. The letter detailed the sequence of
events from the beginning of
the unrests and protests, the community
meetings and correspondence between the parties. SANRAL reiterated
its position that the
events did not constitute Force Majeure. It
provided the ASJV an opportunity to withdraw the notice of
termination and return to
site as directed by the Engineer, failing
which it reserved its rights to terminate the contract in terms of
Clause 15.2(b).
[84]
SANRAL addressed a further letter to the ASJV on the same day. It
addressed the issue of the
request for an undertaking not to make a
claim against the guarantees. In essence, SANRAL’s position was
that should the
ASJV not withdraw its notice of termination of the
contract, that would be a repudiation of the contract, which it would
accept,
and as such the construction works contract would come to an
end.
[85]
Paragraph 8 of this letter constitutes the gist of the dispute and
issues for determination in
this matter, as such, I deem it
appropriate to reproduce the relevant parts;
‘
8.1 The
Contractor is not a party to the contracts concluded between LICL and
the Employer, pursuant to which the Performance and
Retention Money
Guarantees, were issued;
8.2
To the extent that any dispute may exist in relation to the
underlying Construction Works
Agreement, more particularly with
regard to the validity or lack thereof, of the Contractor’s
potential termination based
on what the Contractor considered to be
an ongoing event of Force Majeure, is irrelevant in so far as the
Employer may make any
demand for payment, in respect of either the
performance Guarantee, or the Retention Money Guarantee;
8.3
To that end, the Employer disputes that it may not make any lawful
demand, in respect of
either the Performance Guarantee and/or the
Retention Money Guarantee in that the provisions of the underlying
Construction Works
Agreement are irrelevant to any such demand;
8.4
The terms of the respective Guarantees do not make provision for a
limitation of any such
demand, should same be made by the Employer,
until such time that the amount has been finally determined, in
accordance with the
provisions of the underlying Construction Works
Agreement’.
[86]
SANRAL went on to outline the legal position and referred to decided
cases to support its stance
that the ASJV was not entitled to
interfere in its relationship with the third party insurance company,
in this case Lombard Insurance
Company Limited (referred to LICL in
the correspondence exchanged).
[87]
The ASJV replied to this letter on 04 February 2019 and reiterated
its stance that it was not
going to withdraw the termination notice
and was not returning to the site. It indicated its intention to
apply for an interdict
against SANRAL with regard to the guarantees.
The
relevant clauses in the Construction Contract
[88]
An Engineer plays an important role in the execution, monitoring,
reporting and generally resolution
of disputes that may occur between
an employer and a contractor. The Engineer is appointed and is by and
deemed to act on behalf
of the employer. The duties are prescribed in
the Contract.
[89]
In the present matter the appointed Engineer is HVA JV, which is
constituted by a joint venture
between Halcrow Group Ltd, now part of
CH2M, SMEC South Africa (Pty) Ltd and Aurecon SA (Pty) Ltd.
Though
appointed by the employer, an Engineer is required to consult both
parties and in certain circumstances to make determinations.
This is
provided in Clause 3.5 that read as follows:
‘
3.5
Determinations
Whenever these
Conditions provide that the Engineer shall proceed in accordance with
this Sub-Clause 3.5 to agree or determine any
matter, the Engineer
shall consult with each Party in an endeavour to reach agreement. If
agreement is not achieved, the Engineer
shall make a fair
determination in accordance with the Contract, taking due regard of
all relevant circumstances.
The Engineer shall
give notice to both Parties of each agreement or determination, with
supporting particulars. Each Party shall
give effect to each
agreement or determination unless and until revised under Clause 20
[Claims, Disputes and Arbitration].
[90]
The circumstances under which an employer is entitled to make a claim
under the Performance Security
appear from clause 4.2 of the Contract
which reads as follows;
4.2
Performance Security
T
he
Contractor shall obtain (at his cost) a Performance Security for
proper performance, in the amount and currencies stated in the
Appendix to Tender. If an amount is not stated in the Appendix t
Tender, this Sub-Clause shall not apply.
The Contractor shall
deliver the Performance Security to the Employer within 28 days after
receiving the Letter of Acceptance, and
shall send a copy to the
Engineer. The Performance Security shall be issued by an entity and
from within a country (or other jurisdiction)
approved by the
Employer, and shall be in the form annexed to the Particular
Conditions or in another form approved by the Employer.
The Contractor shall
ensure that the Performance Security is valid and enforceable until
the Contractor has executed and completed
the Works and remedied any
defects. If the terms of the Performance Security specify its expiry
date, and the Contractor has not
become entitled to receive the
Performance Certificate by the date 28 days prior to the expiry date,
the Contractor shall extend
the validity of the Performance Security
until the Works have been completed and any defects have been
remedied.
The Employer shall
not make a claim under the Performance Security, expect for amounts
to which the Employer is entitled under the
Contract in the event of:
(a)
failure
by the Contractor to extend the validity of the Performance Security
as described in the preceding paragraph, in which event
the Employer
may claim the full amount of the Performance Security,
(b)
failure
by the Contractor to pay the Employer an amount due, as either agreed
by the Contractor or determined under Sub-Clause 2.5
[Employer’s
Claims] or Clause 20 [Claims, Disputes and Arbitration], within 42
days after this agreement or determination,
(c)
failure
by the Contractor to remedy a default within 42 days after receiving
the Employer’s notice requiring the default to
be remedied, or
(d)
circumstances
which entitle the Employer to terminate under Sub-Clause 15.2
[Termination by Employer]. Irrespective of whether notice
of
termination has been given
.
(highlighted for emphasis)
The
Employer shall indemnify and hold the Contractor harmless against and
from all damages, losses and expenses (including legal
fees and
expenses) resulting from a claim under the Performance Security to
the extent to which the Employer was not entitled to
make the claim.
The
Employer shall return the Performance Security to the Contractor
within 2 days after receiving a copy of the Performance Certificate.
[91]
The Engineer suspended the construction works in terms of Clause 8.8
of the Contract. This provision
also allows the ASJV to extension of
time period as well as claim for costs occasioned by the delays. The
relevant Sub-Clauses
read as follows;
8.8
Suspension of Work
The Engineer may at
any time instruct the Contractor to suspend progress of part or all
of the Works. During such suspension, the
Contractor shall protect,
store and secure such part or the Works against any deterioration,
loss or damage.
The Engineer may also
notify the cause for the suspension, if and to the extent that the
cause is notified and is the responsibility
of the Contractor, the
following Sub-Clause 8.9, 810 and 8.11 shall not apply.
8.9
Consequences of Suspension
If the Contractor
suffers delay and/or incurs Cost from complying with the Engineer’s
instructions under Sub-Clause 8.8 [Suspension
of Work] and/or from
resuming the work, the Contractor shall give notice to the Engineer
and shall be entitled subject to Sub-Clause
20.1 [Contractor’s
Claim] to:
(a)
an
extension of time for any such delay, if completion is or will be
delayed, under Sub-Clause 8.4 [Extension of Time for Completion],
and
(b)
payment
of any such Cost, which shall be included in the Contract Price.
After receiving
this notice, the Engineer shall proceed in accordance with Sub-Clause
3.5 [Determinations] to agree or determine
these matters.
The Contractor shall
not be entitled to an extension of time for, or to payment of the
Cost incurred in, making good the consequences
of the Contractor’s
faulty design, workmanship or materials, or of the Contractor’s
failure to protect, store or secure
in accordance with Sub-Clause 8.8
[Suspension of Work].
8.10
Payment for Plant and Material in Event of Suspension
The Contractor shall
be entitled to payment of the value (as at the date of suspension) of
Plant and/or Materials which have not
been delivered to Site, if:
(a)
the
work on Plant or delivery of Plant and/or Materials has been
suspended for more than 28 days, and
(b)
the
Contractor has marked the Plant and/or Materials as the Employer’s
property in accordance with the Engineer’s instructions.
8.11
Prolonged Suspension
If the suspension
under Sub-Clause 8.8 [Suspension of Work] has continued for more than
84 days, the Contractor may request the
Engineer’s permission
to proceed. If the Engineer does not give permission within 28 days
after being requested to do so,
the Contractor may, by giving notice
to the Engineer, treat the suspension as an omission under Clause 13
[Variation and Adjustments]
of the affected part of the Works. If the
suspension affects the whole of the Works, the Contractor may give
notice of termination
under Sub-Clause 16.2 [Termination by
Contractor].
[92]
Procedures for notification of Force Majeure and its consequences is
prescribed by Clause 19
which reads as follows;
19.1
Definition of Force Majeure
In this Clause “Force
Majeure” means an exceptional event or circumstance:
(a)
which
is beyond a Party’s control,
(b)
which
such Party could not reasonably have provided against before entering
into the Contract,
(c)
which,
having arisen, such Party could not reasonably have avoided or
overcome, and
(d)
which
is not substantially attributable to the other Party.
Force Majeure may
include, but is not limited to, exceptional events or circumstances
of the kind listed below, so long as conditions
(a) to (d) above are
satisfied:
(i)
war,
hostilities (whether war be declared or not), invasion, act of
foreign enemies,
(ii)
rebellion,
terrorism, revolution, insurrection, military or usurped power or
civil war;
(iii)
riot,
commotion, disorder, strike or lockout by persons other than the
Contractor’s Personnel and other employees of the Contractor
and Sub-contractors,
(Highlighted
for identification purposes. ASJV relies on this provision)
(iv)
munitions
of war, explosive materials, ionising radiation or contamination by
radio-activity, except as may be attributable to the
Contractor’s
use of such munitions, explosive, radiation or radio-activity and
(v)
natural
catastrophes such as earthquake, hurricane, typhoon or volcanic
activity
19.2
Notice of Force Majeure
If a party is or will
be prevented from performing any of its obligations under the
Contract by Force Majeure, then it shall give
notice to the other
party of the event or circumstances constituting the Force Majeure
and shall specify the obligations, the performance
of which is or
will be prevented. The notice shall be given within 14 days after the
party become aware, or should have become
aware, of the relevant
event or circumstances constituting Force Majeure.
The Party shall,
having given notice, be excused performance of such obligations for
so long as such Force Majeure prevents it from
performing them.
Notwithstanding any
other provisions of this Clause, Force Majeure shall not apply to
obligations of either Party to make payments
to the other Party under
the Contract.
19.3
Duty to Minimise Delay
Each Party shall at
all times use all reasonable endeavours to minimise any delay in the
performance of the Contract as a result
of Force Majeure.
19.4
Consequences of Force Majeure
If the Contractor is
prevented from performing any of his obligations under the Contract
by Force Majeure of which notice has been
given under Sub-Clause 19.2
[Notice of Force Majeure], and suffers delay and/or incurs Cost by
reason of such Force Majeure, the
Contractor shall be entitled
subject to Sub-Clause 20.1 [Contractor’s Claims] to:
(a)
an
extension of time for any such delay, if completion is or will be
delayed, under Sub-Clause 8.4 [Extension of Time for Completion],
and
(b)
if
the event or circumstances is of the kind described in sub-paragraphs
(i) to (iv) of Sub-Clause 19.1 [Definition of Force Majeure]
and, in
the case of sub-paragraphs (ii) to (iv), occurs in the Country,
payment of any such Cost.
After receiving
this notice, the Engineer shall proceed in accordance with
Sub-Clauses 3.5 [Determinations] to agree or determine
these
matters
.(Highlighted
to emphasise the procedure that the ASJV should have insisted on
after giving notice)
19.5
Force Majeure Affecting Subcontractor
If any Subcontractor
is entitled under any contract or agreement relating to the Works to
relief from force majeure on terms additional
to or broader than
those specified in this Clause, such additional or broader force
majeure events or circumstances shall not excuse
the Contractor’s
non-performance or entitle him to relief under this Clause.
19.6
Optional Termination, Payment and Release
If the execution of
substantially all the Works in progress is prevented for a continuous
period of 84 days by reason of Force Majeure
of which notice has been
given under Sub-Clause 19.2 [Notice of Force Majeure], or for
multiple periods which total more than 140
days due to the same
notified Force Majeure, then either Party my give to the other Party
a notice of termination of the Contract
.
In this event, the termination shall take effect 7 days after the
notice is given, and the Contractor shall proceed in accordance
with
Sub-Clause 16.3 [Cessation of Work and Removal of Contractor’s
Equipment].
Upon such termination,
the Engineer shall determine the value of the work done and issue a
Payment Certificate which shall include:
(a)
the
amounts payable for any work carried out for which a price is stated
in the Contract;
(b)
the
Cost of Plant and Materials ordered for the Works which have been
delivered to the Contractor, or of which the Contractor is
liable to
accept delivery: this Plant and Materials shall become the property
of (and be at the risk of) the Employer when paid
for by the
Employer, and the Contractor shall place the same at the Employer’s
disposal;
(c)
any
other Cost or liability which in the circumstances was reasonably
incurred by the Contractor in the expectation of completing
the Works
(d)
the
Cost of removal of Temporary Works and Contractor’s Equipment
from the Site and the return of these items to the
Contractor’s
works in is country (or to any other destination at no greater cost);
and
(e)
the
Cost of repatriation of the Contractor’s staff and lobour
employed wholly in connection with the Works at the date of
termination.
19.7
Release from Performance under the Law
Notwithstanding any
other provision of the Clause, if any event or circumstance outside
the control of the Parties (including, but
not limited to, Force
Majeure) arises which makes it impossible or unlawful for either or
both Parties to fulfil its or their contractual
obligations or which,
under the law governing the Contract, entities the Parties to be
released from further performance of the
Contract, then upon notice
by either Party to the other Party of such event or circumstance:
(a)
the
Parties shall be discharged from further performance, without
prejudice to the rights of either Party in respect of any previous
breach of the Contract, and
(b)
the
sum payable by the Employer to the Contractor shall be the same as
would have been payable under Sub-Clause 19.6 [Optional Termination,
Payment and Release] if the Contract had been terminated under
Sub-Clause 19.6
[93]
Clause 20.2 provides for appointment of a Dispute Adjudication Board
which has powers to adjudicate
any dispute arising from the Contract
as indicated in Clause 20.4. The envisaged disputes include ‘…
any
dispute as to any certificate, determination, instruction, opinion or
valuation of the Engineer…’
Oral
Submissions
[94]
Applicant
[95]
Mr Lane SC appeared on behalf of the applicant. The issues arising
from the Judgment of Cloete
J in the Kwikspace matter that I have
referred to in the preceding paragraphs emanate from the approach
that the applicant has
adopted in this matter. I have already
summarized the essence of the applicant’s case. It is
contended that SANRAL
is only entitled to present Performance
Security for payment under circumstances specified in Clause 4.2,
namely; (a) failure by
the contractor to extend the validity of the
guarantees, (b) failure by the contractor to pay the employer an
amount agreed upon
or determined by the Engineer in terms of clauses
2.5 or 20, (c) failure by the contractor to remedy a default within
42 days of
agreement or determination; and (d) circumstances that
entitle the employer to terminate the contract in terms of clause
15.2.
[96]
According to the ASJV, SANRAL can call up the guarantees if it
contends that it is entitled to
any amount in terms of Clause 2.5
which reads as follows;
2.5
Employer’s Claims
If the Employer
considers himself to be entitled to any payment under any Clause of
these Conditions or otherwise in connection
with the Contractor,
and/or to any extension of the Defects Notification Period, the
Employer or the Engineer shall give notice
and particulars to the
Contractor. However, notice is not required for payments due under
Sub-Clause 4.19 [Electricity, Water and
Gas], under Sub-Clause 4.20
[Employer’s Equipment and Free-Issue Material], or for other
services requested by the Contractor.
The notice shall be
given as soon as practicable after the Employer became aware of the
event or circumstances giving rise to the
claim. A notice relating to
any extension of the Defects Notification Period shall be given
before the expiry of such period.
The particulars shall
specify the Clause or other basis of the claim, and shall include
substantiation of the amount and/or extension
to which the Employer
considers himself to be entitled in connection with the Contract. The
Engineer shall then proceed in accordance
with Sub-Clause 3.5
[Determinations] to agree or determine (i) the amount (if any) which
the Employer is entitled to be paid by
the Contractor, and/or (ii)
the extension (if any) of the Defects Notification Period in
accordance with Sub-Clause 11.3 [Extension
of Defects Notification
Period].
This amount may be
included as a deduction in the Contract Price and Payment
Certificates. The Employer shall only be entitled to
set off against
or make any deduction from an amount certified in a Payment
Certificate, or to otherwise claim against the Contractor,
in
accordance with this Sub-Clause.
[97]
The amounts due are determined by the Engineer acting in terms of
Clause 3.5 that I have already
referred to.
[98]
First Respondent
[99]
Mr Watt-Pringle SC appeared on behalf of SANRAL. The stance adopted
by SANRAL is that the legal
principles that were left open in the
judgment of Kwikspace are not part of South African law and the
English cases do not assist
the applicant.
[100]
The only clause that can potentially prohibit demand of payment of
the guarantees is 4.2, however, the principle
is that the guarantees
must be paid and parties can fight about the entitlement of the
amount paid at a later stage. For this reason,
the applicant has not
shown irreparable harm and absence of a satisfactory alternative
remedy.
[101]
There is a wealth of authorities to the effect that guarantees are
akin to letters of credit. The banks pay without
knowing whether the
goods are in good order or not.
[102]
Other submissions were with regard to the requirements for an
interdict. According to Mr Watt-Pringle the relief
sought was final
in effect.
[103]
He also raised the argument of locust standi of the ASJV to interfere
with the contractual relations it has with
Lombard under
circumstances where it is not a party.
[104]
It was also denied that the events that gave rise to the suspension
of construction works constituted ‘Force
Majeure’. There
is no evidence that the riots continued for a continuous period of 84
days. There is no prima facie evidence
of a ‘Force Majeure’.
[105]
He referred to the judgment of Mthiyane AP in the matter of
Eskom
Holdings SOC Limited v Hitachi Power Africa 139/2013
[2013] ZASCA 101
(12 September 2013)
and argued that the South Africa law has not
advanced beyond the lacuna that was left by Cloete JA in the
Kwikspace judgment. The
relevant portions of the judgment relate to a
question as to whether failure to comply with a clause similar to the
current 2.5
was fatal. The court held that it was not and that the
High Court’s insistence that Eskom should have given notice was
erroneous.
The guarantees could be claimed under clauses that
entitled Eskom to terminate the contract.
[106]
Mr Lane submitted replying heads of argument on behalf of the ASJV
and specifically addressed this judgment. This
judgment does not
assist me because there is no certainty that the clauses in the
Eskom/Hitachi contract are actually similar or
the same as in the
present matter. I will elaborate my view in the paragraphs below that
indeed South African law has moved from
the lacuna that was left
open. Each case must be decided on its own merits.
[107]
Second Respondent
[108]
Appearing for Lombard, Mr McAslin’s contribution to the matter
before me was limited to submissions relating
to the nature of the
guarantees. The view of Lombard is that the performance guarantee
that is the subject matter of these proceedings
is a ‘conditional’
guarantee. The parties agreed that I should not make a determination
on this issue, consequently,
the arguments in this regard are merely
academic.
DISCUSSION
[108
]
Autonomy/independence of construction guarantees, and
whether South African law has developed in line with the position in
Australian
law.
[109]
I agree with the submissions made on behalf of the ASJV that our
courts are not oblivious of the relevance of
the underlying agreement
between the employer and the contractor and the effect that it may
have on the rights of the former should
it seek to make a claim
against the guarantees.
[110]
It is unfortunate that the Counsel for the applicant, Mr Lane did not
produce a written judgment in the matter
of Liero Civils (Pty) Ltd v
Roads Agency Limpopo (SOC) and Credit Guarantee Insurance Corporation
of South Africa, Case No. 24906/2018
(SGJ) to support a submission in
his heads of argument that the court has ruled that a contractor is
entitled as of right to seek
interdictory relief against the employer
from breaching the underlying contract. Absence written reasons for
the order, it is difficult
or impossible to comprehend the rationale
for the decision.
[111]
I have, on my own, as I was preparing to write this judgment
researched the matter and I came across a few authorities,
albeit at
the level of the High Courts, that seems to suggest that the lacuna
left by Cloete JA may no longer pose a difficulty
that we should be
afraid to confront, and close, should the relevant facts provide such
a platform. My judgment on this matter
does not turn on this issue,
hence I did not deem it necessary to direct the attention of the
parties to these matters before finalizing
my judgment.
[112]
Indeed, a lot has happened since 2010 when the Kwikspace judgment was
issued, and as expected, parties in construction
contracts, would
want to utilize the modern principles to argue for a view that the
contractor is entitled to interdict the employer
from presenting
contract guarantees for payment on the basis of a clause in the
construction agreement.
[113]
It may be an issue of how the legal question was initially formulated
and understood in 2010 , but indeed, there
is authority that
suggest that our courts have ventured to answered the lacuna left,
without necessarily saying so.
[114]
Whether or not the answers are correct and should be considered as
law is another question because as I have indicated,
these are
decisions of lower courts (High Courts).
[115]
One such case is the judgment of Rogers J in the matter of
Granbuild
(Pty) Ltd v Minister of Transport and Public Works, Western Cape and
Another (5021/2015)
[2015] ZAWCHC 83
(5 June 2015
). In this
matter, the applicant sought to interdict the insurer from making
payment to the employer in terms of a construction
guarantee. The
application was based on three grounds, being;
(a)
that there was a pending leave to appeal an earlier judgment between
the parties with regard to a disputed cancellation of the
contract.
This was rejected.
(b)
the interpretation of a clause that dealt with the employer’s
‘right of recovery’ of money against the contractor.
This
relates to payment certificates prepared by the Principal Agent
(Engineer in this case). The amount due is certified, whereafter
if
the contractor does not pay, the employer is entitled to claim from
the insurer. The ground was upheld.
(c)
that the applicant had locus standi to seek the interdict. The court
found that the applicant had an interest that was worth
protecting
because of the counter-guarantees that it would be called upon to
satisfy in the event of a successful claim being made
by the
employer.
[116]
One of the arguments raised to support the reasoning that the
so-called ‘underlying contract exclusion ‘is
not part of
South African law is that the contractor is not part of the agreement
between the employer and the insurance company.
As it can be seen
from the judgment of Rogers J, a contractor has an interest in the
manner in which and reasons for which a guarantee
is presented. I may
add that this is in line with the settled principles of natural
justice. The fact that a party may obtain justice
later does not mean
that an injustice must be allowed to happen when on the face of the
facts it should not.
[117]
The right to recovery clause referred to in this judgment is in my
view on the same footing with the clause 2.5
and the determinations
in terms of clause 3.5 that an Engineer, such as in this case would
be required to do with regard to calculating
the money that is due to
the employer.
[118]
In
the matter of Sultzer
Pumps (South Africa) (Proprietary)
Limited v Covec-MC Joint Venture (1672/2013) [2014] ZAGPPHC 695 (2
September 2014),
Jansen J dealt with similar
questions in the context of an agreement between the parties to
extend the period of validity
of guarantees. The circumstances may
not be similar, but the importance of the judgment in my view is that
the learned Judge examined
academic writings and foreign law to
arrive at a decision. This is how any aspect of local law may be
developed. We cannot shy
away from confronting the issues simply
because courts have not expressed an opinion and ruled on the matter.
Academics play an
important role in the development of the law.
[119]
Having said the above, it is my view that there is a need for the
Higher Courts to pronounce on the so-called
lacuna that has been left
by Cloete JA because two of the fundamental objections (legal
standing of the contractor and autonomy
principle) appear to be
no longer relevant. For the moment, the views expressed by the High
Courts represent South African law.
[120]
The facts of the matter before me do not require a pronouncement on
the issue, save to state that if this was
the only issue for
decision, I would make a finding that the applicant has locus standi
to interfere with the right of the first
respondent to present the
guarantees for payment. And furthermore, based on Clause 4.2 of the
Contract, the first respondent would
have to meet the jurisdictional
factors therein before presenting the guarantees for payment. This,
in my view would entitle the
applicant to interdictory relief as
prayed for.
[121]
I must examine whether on the facts before me the applicant has made
out a case for the relief sought. The declaration
of rights must
happen in context, and if there is no context, it becomes an academic
exercise to grant the relief of declaration
of rights. The context
here is whether the ASJV was entitled to rely on Force Majeure for
its purported cancellation of the contract.
Because there are many
issues that were not canvassed in the letters exchanged, a proper and
final answer to this question belongs
to the dispute resolution forum
created in terms of the Contract. For present purposes the applicant
need only prove a prima facie
case.
Whether
there was a state of Force Majeure entitling cancellation of the
contract
[122]
I am alive to the fact that I do not have to decide the presence or
absence of a state of Force Majeure. There
are three main issues
here; (a) whether on the facts, and having regard to the definition
of what constitute Force Majeure, the
applicant would succeed in the
intended dispute resolution forum to prove that indeed there was a
state of ‘Force Majeure’,
(b) whether on the facts the
prescribed procedures were followed. The last issue is the validity
of the cancellation. This depends
on the answers to (a) and (b).
[123]
The difficulty that the applicant will have to overcome looking at
the definition of ‘Force Majeure’
is the following; (a)
whether the protests or unrests could not reasonably have been
avoided or overcome; (b) whether these incidents
are not
substantially attributable to SANRAL and (c) whether the alleged
‘Force Majeure’ affected a substantial
part of the works.
It is clear from the determination of Claim 6 that ‘Force
Majeure’ applied to one claim. The reporting
was also vague,
such that there is no indication of the extent of the affected areas.
This should have been made clear, and absence
evidence in this
regard, the ASJV will face a difficulty to prove that indeed there
was ‘Force Majeure’, as defined.
[124]
It appears from the correspondence that has been attached emanating
from the protesters and the local authorities
that there were some
agreements or undertakings made by SANRAL with regard to the source
of materials and employment opportunities
for the local community.
These
issues are similar to those that formed the subject matter of the
first application in the matter of Granbuild that was before
Schippers J and pending application for leave to appeal. The
undertakings that SANRAL makes with the local service providers
or
even in terms of economic empowerment policies often lead to
dissatisfaction, resulting in the nature of protests that the ASJV
has described.
[125]
SANRAL repeatedly asked the ASJV to attend community meetings to
resolve the dissatisfaction that was causing
the unrests. From day
one, the ASJV adopted a stance that the events constituted ‘Force
Majeure’ that entitled it certain
rights in terms of the
contract. The Contract obliges the parties to make efforts to resolve
the problems.
[126]
Indeed, no efforts were made by the ASJV to at least be party to the
problem solving, which, in my view could
reasonably have been
anticipated and planned for. The ASJV contends that SANRAL’s
allegations that the matter of unrests
was resolved in the meeting of
08 or 09 January are false at misleading because a day later (10
January 2019) Chief Khanyayo and
Headman Jama addressed to the
parties and the Mbizana Local Municipality and threatened to instruct
the ‘
people to stop any truck bringing stone to the bridge
site, until ASJV starts using the quarries in Madiba area’.
[127]
Reading this letter and others directed to the parties by the local
community suggest that the events giving rise to
the unrests cannot,
objectively assessed, be deemed as ‘Force Majeure’.
[128]
The next enquiry that I would undertake on this issue of Force
Majeure is whether it was properly notified and
dealt with in terms
of the Contract. The ASJV was aware from the beginning that the
Engineer was not willing to classify the events
as Force Majeure and
did nothing about it except to refer to it in each and every letter
and reserve its rights. This is not enough.
The Contract makes
provision for referral of disputes that arises in the execution of
the Contract to the Dispute Appeal Board.
It became even clearer when
Claim 6 was assessed and evaluated that there was no consensus on the
classification of the events.
[129]
The questions with regard to termination of the contact on the basis
of ‘Force Majeure’ have
become academic in view of
what I have stated above with regard to the difficulties that the
applicant will have to overcome.
The
disputed cancellation of Contract and the rights of SANRAL
[130]
The ASJV’s refusal to return to site as instructed by the
Engineer and its subsequent cancellation
of the contract on the
basis of Force Majeure in view of what I have stated above has no
legal basis.
[131]
consequently, the instruction issued by the Engineer to the ASJV to
return to site was valid and the ASJV ignored
it at its own peril.
[132]
All this lead to one conclusion. SANRAL was justified to regard the
ASJV’s actions as repudiation of the
Contract. It (SANRAL) will
be justified to rely on the provisions of the contract to terminate
the contract and, amongst other
consequences, present the guarantees
for payment.
Conclusion
[133]
Under the circumstances, I make the following order;
[133.1]
The application is dismissed with costs.
TAN
Makhuvele
Judge
of the High Court
Appearances:
Applicant:
Advocate PM Lane SC
Instructed
by:
Pinsent Masons South Africa Inc
Sandton
JOHANNESBURG
First
Respondent:
Advocate CE Watt-Pringle
SC
Advocate A Glendinning
Instructed
by:
Cliffe Dekker Hofmeyr Inc
Sandton
JOHANNESBURG
Second
Respondent:
Advocate CJ McAslin
Instructed
by:
Frese Moll and Partners
c/o
Prinsloo Van der Linde Attorneys
Lynwood
PRETORIA
[1]
Footnotes were omitted.