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[2018] ZAGPJHC 569
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Teichmann Structures (Pty) Ltd v Hollard Insurance Company Ltd and Another (24233/18) [2018] ZAGPJHC 569 (19 October 2018)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA,
GAUTENG LOCAL
DIVISION,
JOHANNESBURG
CASE
NO: 24233/18
In
the matter between:
TEICHMANN
STRUCTURES (PTY)
LTD
1
ST
APPLICANT
and
HOLLARD
INSURANCE COMPANY
LTD
1
ST
RESPONDENT
ELB ENGINEERING
SERVICES (PTY) LTD 2
ND
RESPONDENT
J U D G M E N T
CARRIM
AJ:
1.
In
this matter, the Applicant brought an urgent application seeking an
order interdicting the First Respondent from making payments
to the
Second Respondent in terms of a Performance Guarantee and an Advance
Payment Guarantee issued by the First Respondent in
favour of the
Second Respondent and compelling the Second Respondent to deliver to
the Applicant the original Performance Guarantee
and costs against
the Second Respondent.
2.
The
application was heard by Dippenaar AJ on 10 July 2018. Interim
relief was granted by her in respect of the Advanced Payment
Guarantee (APG)
[1]
but refused
in respect of the Performance Guarantee.
[2]
Pending the final determination of the application, the First
Respondent (“Hollard”) was restrained from making
payment
to the Second Respondent. The application for final relief was
postponed to 10 September 2018 and the matter was argued
before me on
that day.
3.
At
the outset, the Applicant submitted that it no longer persisted with
an order for final relief and applied instead for the matter
to be
referred to oral evidence for the determination of two main issues –
3.1.
Was
the Advance Payment Guarantee numbered EFP/EBGSP/00133725#1 issued to
secure the Applicant’s obligation to repay the advance
payment
of R16 246 006.66 only or was it issued akin to a
Performance Guarantee in order to secure the Applicant’s
obligations generally? and
3.2.
Was
the demand by the Second Respondent on 22 June 2018 for payment under
the aforementioned guarantee fraudulent?
4.
The
Second Respondent (“ELB”)
[3]
opposed the request for referral to oral evidence on the basis that
the applicant ought to have foreseen the factual dispute when
it
first launched the application.
Background facts
5.
On
29 March 2017, the Applicant and ELB entered into a contract for the
construction of civil works on the Gamsberg Zinc Concentrator
Project
(“the works”) under Project Number PG0024-00044 (“the
contract”). ELB was the main contractor
in terms of the
contract it had with Black Mountain Mining (Pty) Ltd (“Black
Mountain”) and the Applicant was ELB’s
sub-contractor.
6.
The
terms of the contract were mainly regulated by the Federation
International des Ingenieurs-Conseils (FIDIC)
[4]
conditions of contract for Construction Building and Engineering
Works Designed by the Employer, 1999 (“the Red Book”).
7.
The
Applicant required advance payments in order to commence work and was
given the following advance payments over the duration
of the
contract-
7.1.
An
early advance of R 8 690 128.90 on 1 June 2017;
7.2.
An
amount of R16 244 820.53 which was paid directly to the
suppliers of the Applicant by ELB; and
7.3.
An
amount of R12 000 000.00 which ELB had advanced to the
Applicant at the request of Black Mountain because the Applicant
had
approached Black Mountain directly. Black Mountain paid the money
over to ELB who in turn advanced it to the Applicant on 8
August
2017.
8.
The
Applicant provided a Performance Guarantee in the amount of R8
890 128.90
[5]
(being10% of
the contract price), a first APG in the amount of R8 690 128.90
[6]
and a second APG of R16 246 006.66.
[7]
9.
The
Performance Guarantee is no longer a subject of these proceedings,
relief thereon being denied by Dippenaar AJ. The first
APG has
since expired and is also not the subject of these proceedings. Only
the second APG remains the subject of these proceedings.
10.
It
was anticipated that the contract would commence on 31 March 2017 and
the time of completion was estimated as 30
November 2017.
It seems that the Applicant only commenced work on site on 12
May 2017.
11.
Mr
Thomas Siebert (“Siebert”) was appointed as Engineer,
whose duties included the certification of payment. Siebert
happened to be an employee of ELB.
12.
A
process of payment was established whereby an application for payment
by the Applicant was made and an Interim Payment Application,
referred to by the parties as Interim Payment Certificate (“IPC”)
was prepared, which required two sets of signatures
from each party.
The first set of signatories consisted of a signatory from each side,
from people who were seemingly closer
to the works, for example, the
engineer on behalf of ELB and the site agent on behalf of Teichmann.
The second set also required
a signatory from each side, presumably
from people authorised to sign off on final payment.
13.
The
project did not progress as initially anticipated and timelines were
pushed out. Labour and Supplier disputes seem to
have impacted
on progress at various times. While milestones were not being
achieved on time by the Applicant, payments were
also not being made
by the Second Respondent timeously.
[8]
14.
It
was common cause that the APG is an unconditional guarantee and that
Hollard would be obliged to satisfy the ELB’s claim
provided it
complied with the requirements of the guarantee itself.
Guarantees such as these are considered to be irrevocable
letters of
credit, their essential feature being a contractual obligation on the
part of the bank (Hollard in this case) to pay
the beneficiary (ELB
in this case), an obligation which is wholly independent of the
underlying contract.
[9]
The guarantee is often written as a letter of undertaking or
irrevocable credit, addressed to the beneficiary or the Favouree
(see
annexure “NOM B”). All that is required for payment
is a demand by the claimant.
[10]
These types of “on-demand” guarantees are commonly found
in construction projects, precisely to secure either
the performance
obligations of the contractor or advance payments made to them and
which might not have been recouped by the employer.
They are seen as
protective measures for employers/beneficiaries against the default
of the contractor of its obligations under
a contract. The only
basis on which a guarantor (issuing bank) can withhold honouring its
irrevocable undertaking is if the
claim by the Favouree was
fraudulent.
The
issues
15.
The
Applicant’s case in essence is that ELB has recouped the entire
advance payments made to it that were specifically secured
by the
guarantee. The Applicant concedes that an amount of
R2 129 876.62 is outstanding but alleges that this amount
is not secured by the APG and is related to the R12 000 000.00 loan
which was a “
transaction
entirely separate from the building contract
”.
[11]
16.
Hence
a distinction is drawn by the Applicant between secured and unsecured
advance payments. In its view, only those amounts that
were secured
by the guarantee
specifically
could be claimed by ELB. Given that the amount of R2 129 876.62
was related to the unsecured advance of R12 000 000.00
this
had to be recouped or claimed in another way and not under the
guarantee.
17.
As
to the terms of the unsecured R12 000 000.00 loan, it was
alleged that “
there
were no specific terms for that loan other than the fact that the
parties agreed that it would of course be repaid through
the
certification process and through the Final Account if
necessary
.”
[12]
18.
The
Second Respondent’s case was that the Applicant owed
approximately R25 000 000.00 of advance payments that had not
been recouped. All advance payments made to the Applicant were
loans to be recouped over the duration of the contract and
were
treated the same by the parties in their interactions, which included
the R12 000 000.00. Furthermore, the
wording in
clause 2 of the APG allows ELB to claim for “
any
loss or damage caused to or would be caused to you (ELB) by reason of
default(s) on the part of the Party in discharging any
of its
obligation under the said contract and specifying the amount to the
Guarantor
”.
The Applicant had accepted this wording at the time the guarantee had
been issued and it was now a binding agreement
between Hollard and
ELB.
19.
The
Applicant further alleged that it had cancelled the contract on 26
April 2018 and that its liability falls to be determined
as of that
date, and that when the Second Respondent made the claim
on the APG on 22 June 2018, it was aware that the
Applicant had
already terminated the contract. ELB disputed this,
submitting that the Applicant had at one stage
indicated its
intention to cancel the contract but that did not occur.
Assessment
20.
In
my view this case turns on a very narrow issue. The Applicant
has conceded that there is an amount outstanding in its founding
affidavit. The central plank of the Applicant’s case is
that the outstanding amount of R2 129 876.62 did
not form
part of the secured advance payments made to it by ELB. In my
view if the Applicant is unsuccessful in showing this
there would be
no need for me to pronounce on the interpretation of clause 2 of the
APG or for that matter whether the contract
had been cancelled or
not.
21.
In
relation to the interpretation debate the Applicant argued that if
clause 2 was found to cover all advance payments it would
seek a
rectification of the contract because that was not what it had
intended. However, such relief is not available to
the
Applicant in these proceedings because as Mr Burman on behalf of ELB
pointed out, the Applicant was not a party to the contract
between
Hollard and ELB.
[13]
I
return to the cancellation dispute later.
22.
The
Applicant relied primarily on two documents for its case that all
secured advances had been recouped, namely IPC 13 dated 25
May
2018
[14]
and an email from Mr
De Waal (“De Waal”),
[15]
dated 18 June 2018.
23.
IPC
13 lists Advance Payments made to the Applicant in the amount of
R36 934 949.43 then reflects an amount of R 34 805 072.81
in the line item “REPAYMENT OF ADANCE PAYMENT”. The
balance owing to the Applicant of R114 320.29 is reflected
in
the bottom line “NET AMOUNT PAYABLE THIS CERTIFICATE”.
24.
In
its founding affidavit, the Applicant reproduced the sentence in the
email which read: “
ELB
acknowledges that the advance payments have been recovered under the
recent amendments and payment certificates and there is
no need to
extend these
”
(“the sentence”) as support for its the conclusion that
all the secured advance payments had been recouped and
therefore
there was no need to extend the validity of the guarantees.
[16]
There was a further issue about Applicant’s failure to
extend the APG which I find unnecessary to deal with in detail.
25.
The
two documents read together are relied upon by the Applicant as
support for its version that the claim on the APG was fraudulent
because the Second Respondent
itself
had
confirmed to it that all advance payments had been recouped (IPC 13)
and there was no need to extend the validity of the guarantee.
26.
However,
De Waal on behalf of the Second Respondent alleges that IPC 13 was
really a suggestion, in essence a proposed payment plan
in the event
that the parties agreed to certain amendments to the contract. This
is evident from De Waal’s email, the parties
at that stage were
engaged in negotiations regarding the amendments. The Applicant
ultimately did not accept the amendments
and therefore IPC 13 was not
implemented. Accordingly, the advance payments stated therein
were not recouped.
27.
In
relation to the R12 000 000.00 loan, De Waal explains that
this was advanced to the Applicant at the request of Black
Mountain
because the Applicant had approached Black Mountain directly.
Black Mountain paid the money into ELB’s account
and ELB then
paid this onto the Applicant. (Annexures “AA3.1” and
“AA3.2”). He alleges that
it was agreed that
this advance would be paid back to Black Mountain by way of monthly
deductions of R2 000 000.00 each
from payments otherwise
due to the Applicant. The first three deductions from amounts
due did not take place because of the
Applicant’s financial
constraints but subsequent ones had been. To date, the Second
Respondent has recouped R10 000 000.00
from the Applicant,
with R2 000 000.00 still outstanding. (Annexures “AA4”
– “AA7”). While
the R12 000 000.00 was to
be “repaid” by way of monthly deductions, it was treated
as an advance payment
to the Applicant to be recouped under the
contract and not outside of it. To date the advance payments of
R8 690 128.90
and R16 246 006.66, in which the
R2 000 000.00 is included, have not been repaid or
recouped.
28.
A
closer reading of De Waal’s email of 18 June 2018, is warranted
to understand its context.
29.
In
the email De Waal first summarises the progress in the discussions
and then says “
Teichmann’s
claims through the agreed process has made significant progress to
the point where the
agreed
portions can now be incorporated in amendments
(
my
emphasis
)
and in the final account
”.
He then goes on to say “
ELB’s
claims are next up for discussion
”.
All of this clearly indicates that the parties were engaged in an
agreed process to resolve matters (in order to
arrive at the Final
Account) but confirms they are still in
discussions
about how to do this.
30.
The
paragraphs that immediately precede and succeed the sentence relied
upon by the Applicant are critical to understanding its
full context.
The paragraph starts with the words:
“
Given
the progress that Paul and I (with help from the team) have made with
the above I would suggest the following:
That ELB compile
and present its claims followed by a meeting with the key players to
agree a method of addressing these…Naturally
this is still
dependent on the outcome of Warren’s extended brief which
should be imminent.
[ELB
acknowledges that the advance payments have been recovered under the
recent amendments and payment certificates and there is
no need to
extend these.]
[17]
After
receipt of your agreement and verification that the amendments have
been signed by all, ELB will return the originals for
cancellation
.”
31.
The
sentence, relied so heavily on by the Applicant, read in context does
not lend support to the Applicant’s version that
De Waal had
provided an unconditional confirmation that all advance payments (of
any type) had been recovered. On the contrary
it confirms ELB’s
version that the parties were engaged in discussions and De Waal had
put forward a suggested plan of action
provided that the Applicant
agreed to the amendments.
32.
It
is common cause that the Applicant did not agree to the amendments so
there could be no recovery of the advance payments.
33.
The
Applicant was challenged by the Second Respondent to provide proof
that IPC 13 had been implemented. A reconciliation
was
eventually provided in the Applicant’s Supplementary Replying
Affidavit deposed to by Mr Roland Ramphal (“Ramphal”),
at
page 673 (“SRA7”) which shows a column headed “Payment
Applications” and another entitled “Payments
Received”.
34.
The
explanation provided by Ramphal at paragraphs 148.3 and 148.4 is as
follows-
34.1.
SRA7
is a reconciliation of the amounts paid to the Applicant for this
project measured against amounts certified due to be paid
by the
Applicant;
34.2.
The
reconciliation records the Applicant having been paid the sum of
R128 827 184.59 as against the invoiced amount of
R128 359 655.95, a slight
overpayment
of
R467 528.64;
34.3.
Due
to the haphazard manner in which the Second Respondent made payments
it was difficult to reconcile actual payments against payment
certificates, but that the reconciliation “
conclusively
demonstrates that IPC 13 having been implemented by the Second
Respondent after it was issued by the engineer
”.
35.
However,
there are a number of anomalies in SRA7. The first is that IPC
13, which was only signed on 27 April 2018, has been
included under
Payment Applications but the last actual payment date is recorded as
23 April 2018, a payment made
prior
to IPC 13 being generated or signed. A further anomaly in SRA7
is the figure of the first advance payment which is recorded
as
R9 906 746.95. This figure in earlier documents was put at
R8 690 128.90. The entire exercise
employed in
SRA7 seems to have been designed to correspond ultimately with IPC 13
because the statement “
corresponds
with certificate #13 TTD
”
is found underneath a column with the amount of R114 069.63, an
amount similar to that in IPC 13 in the line item “Net
Amount
Payable This Certificate”. This amount is not reflected
in the Actual Payments column.
36.
Ramphal
does not state who did the reconciliation, when it was done and
whether it was audited. Neither does he provide any
explanation
for the anomalies. No proof of payments in the form of EFT’s or
bank statements, which could easily have been
obtained, were attached
to the affidavit. A belated explanation of the method employed
in SRA7 was provided by Counsel from
the bar but was unhelpful in
explaining these anomalies.
37.
In
my view, SRA7 does not provide any proof of the implementation of IPC
13.
38.
Moreover,
the documents in the record tend to suggest that notwithstanding the
specific repayment arrangement regarding the R12 000 000.00,
all amounts advanced to the Applicant were treated in the same manner
by both parties namely as advance payments to be recouped
by way of
work done or deductions. As can be seen, each interim payment
applicant, the line items “Repayment of Advance Payments”
are listed merely as that, without any distinction being made whether
these were against secure or unsecured advances (see Annexures
AA4 –
AA7). If the distinction, as sought by the Applicant, was
intended by both parties one would have expected
to see recoupments
recorded against the specific advance types. Indeed, IPC13
itself which is so heavily relied upon by the
Applicant makes no such
distinction. There are only the globular figures of “Advance
Payments” and “Repayment
of Advance Payment”.
39.
Critically,
the Applicant eventually conceded that it had arrived at the
outstanding amount of R 2 129 876. 62 by
merely
subtracting
R34 805 072.81 from the figure of R36 934 949.43
reflected on IPC 13 and as discussed above IPC 13 makes no
distinction between so called secured and unsecured advances. Even if
I was to accept for argument’s sake that there was
an agreement
between the parties to treat the R12 000 000.00
differently, and that a distinction ought to be drawn between
secured
and unsecured amounts, IPC 13 and De Waal’s email do not
support the Applicant’s case in any way whatsoever
that the
outstanding amount was related to the unsecured R12 000 000.00.
40.
The
Applicant’s further concessions that this outstanding amount
“
would
of course ultimately be repaid through the certification process and
through the Final Account if necessary
”
[18]
and that the
“
amount
can be amortised against further measured work and /or set off
against retention being held by the Second Respondent
”
is further support for the inference that the outstanding amount was
part of the contract and not “outside of the
building contract”
as initially alleged.
[19]
41.
As
far as the cancellation of the contract is concerned the papers filed
in the matter including those relied upon by the Applicant
do not
support its own contention that the contract was cancelled on 27
April 2018. IPC 13, which was the most critical document
for
the Applicant in support of its version is signed on 27 April 2018
and contemplates a completion date of 25 May 2018.
De Waal
confirms that the Applicant did threaten to cancel the contract at
some stage but had not done so. In paragraph 104
[20]
all the claims submitted by the Applicant, attached as annexures AA9
- AA16, are set out by De Waal, showing that all are dated
after 26
April 2018 and therefore were all done in accordance with the
contract. According to De Waal, at the time of his
sworn
statement, the Applicant was still on site and continued to perform
in terms of the contract. But as I indicated earlier
this issue
does not take the matter any further because the Applicant has failed
to show that the amount outstanding is
not
secured
by the APG.
Conclusion
42.
In
order to succeed in its final relief, the Applicant had to show that
ELB was seeking to lodge a fraudulent claim with Hollard.
43.
The
Applicant conceded that the amount of R 2 129 876. 62 was
outstanding but sought to make the case that this was related
to an
unsecured R12 000 000.00 advance payment and not to the
APG.
44.
The
documents in the record tend to support the Second Respondent’s
version that all advance payments were treated the same
without
distinction between secured and unsecured.
45.
Even
if I were to accept for argument’s sake that the R12 000 000.00
loan was to be treated differently the Applicant
has not been able to
provide any evidence to support its own version that the outstanding
amount of R 2 129 876. 62 was related
to the unsecured loan of
R12 000 000.00 and therefore not secured by the APG. On
the contrary the Applicant’s
concession that it arrived at this
figure by simply subtracting an amount of R 34 805 072.81
in the line item “REPAYMENT
OF ADANCE PAYMENT” of IPC 13
from a globular figure of R36 934 949.43 of advance
payments tends to support ELB’s
version. IPC 13 makes no
distinction between secured and unsecured advances so there is no
basis for the Applicant to draw
the inference that the difference
between the two figures was part of the so called “unsecured”
advance payment.
46.
The
Applicant’s reliance on De Waal’s email and the sentence
“
ELB
acknowledges that the advance payments have been recovered under the
recent amendments and payment certificates and there is
no need to
extend these”
when
read in context does not support the conclusion that all advances
secured by the APG had been recovered. This recovery
was
conditional on the Applicant agreeing to certain amendments which
agreement did not take place.
47.
On
the basis of
Plascon-
Evans
,
[21]
the application must be dismissed.
48.
The
Applicant has requested that the matter be referred to oral evidence
and has suggested that only three witnesses be called namely
Gibbs,
Ramphal and De Waal.
49.
It
is trite that motion proceedings unless concerned with interim relief
are all about the resolution of legal issues based on common
cause
facts. Unless the circumstances are unusual they cannot be used
to resolve factual disputes. If the dispute relates
to the
veracity of the affidavit of one or more deponents, a court may order
one or more of them to appear for cross-examination.
Alternatively,
if the dispute falls within a narrow range then the issues may be
referred to oral evidence.
[22]
50.
However,
the mere fact that a dispute of fact has arisen does not entitle a
party to have the matter referred to oral evidence.
A court
must be satisfied that there is a reasonable prospect that oral
evidence will disturb the probabilities as they appear
from the
papers. In circumstances where the Applicant ought reasonably to have
foreseen a dispute of fact, the application may
be dismissed.
[23]
51.
I
accept that in order to obtain urgent interim relief the Applicant
had to come by way of application proceedings. However,
it is
clear that the Applicant reasonably ought to have foreseen a dispute
of fact when it selectively relied on IPC 13 and one
sentence in De
Waal’s email, which when read in context demonstrates a far
wider discussion between the parties than a mere
confirmation that
the secure advance payments had been recovered.
52.
More
significantly, and despite the voluminous exchange of papers, the
Applicant has failed to show the essential issue alleged
by it namely
that ELB was fraudulent in making a claim on the APG. It has not been
able to show that the outstanding monies (which
it concedes are
outstanding) are not secured by the APG (or unsecured on its own
version). In fact the very documents that
the Applicant seeks
to rely on in support of its case tend to support ELB’s
version. I cannot see how cross-examination of
the three deponents is
likely to take this matter any further.
53.
There
is of course the remaining dispute about the magnitude
,
as
opposed to the nature, of the outstanding money but that is not in
essence the subject matter of these proceedings. It
bears
emphasis that in these proceedings the Applicant sought to
demonstrate fraud on the part of ELB in relation to a guarantee
between Hollard and ELB. The Applicant’s case was not that
monies were not outstanding but that these were not secured by
the
APG. It has failed to show this. In order to determine the
exact amount outstanding the Applicant is not without a remedy
against ELB and could still refer the matter to arbitration as
provided for in the contract.
54.
In
the circumstances I make the following order-
54.1The Application
is dismissed with costs, such costs to include the costs of two
counsels.
_________________
Y
Carrim
Acting
Judge of the High Court: Gauteng Local Division
For the Applicant:
CE Watt-Pringle SC
CJ
McAslin
Instructed
By: Cox Yeats c/o Hogan Lovells (SA) Inc
For the First
Respondent: BW Burman SC
S
Tshikila
Instructed By:
Bowman Gilfillan Inc
[1]
Prayer 2(b) of the Notice of Motion
[2]
Prayer 2(a) of the Notice of Motion
[3]
I will refer to the second respondent as ELB interchangeably
[4]
Federation International des Ingenieurs-Conseils
[5]
Clause 4.2 of the contract
[6]
Clause 14.2 of the contract
[7]
As agreed between the parties
[8]
See the many various emails annexed to the papers but as an example
see email in “SRA6” from Graham Comins to Waldemar
Hulscher dated 12 September 2017 and the threads below.
[9]
See
Lombard Insurance Co v Landmark Holdings
(Pty) Ltd
2010 (2) SA 86 (SCA)
[10]
See
Min of Transport and Public Works,
Western Cape & Another v Zanbuild Construction (Pty) Ltd
& Another
2011
(5) SA 528 (SCA)
[11]
Para 36 FA
[12]
FA para 38
[13]
.See
the discussion above about the nature of the APG
[14]
“
FA9”
[15]
“
FA10”
[16]
FA para 40.
[17]
The sentence relied upon by the Applicant
[18]
Founding Affidavit
[19]
Para 152
[20]
AA
[21]
Plascon Evans Paints Ltd v Van Riebeeck
Paints (Pty) Ltd
1984 (3) SA 623 (A)
[22]
Harms
Civil Procedure in the Superior Courts
B 64
[23]
Transnet Limited v Erf
152927 Cape Town (Pty) Ltd & others
(798/2010)
[2011] ZASCA 148
(26 September 2011)