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[2018] ZAGPJHC 633
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Fast Track Contracting (Pty) Ltd v Constantia Insurance Company Limited and Others (22474/2018) [2018] ZAGPJHC 633 (14 December 2018)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, JOHANNESBURG)
Case
No: 22474/2018
In
the matter between:
FAST
TRACK CONTRACTING (PTY)
LIMITED
Applicant
and
CONSTANTIA
INSURANCE COMPANY LIMITED
First
Respondent
GROUP
FIVE CONSTRUCTION (PTY)
LIMITED
Second
Respondent
GROUP
FIVE COASTAL (PTY)
LIMITED
Third
Respondent
Case summary
:
Construction guarantee – Interdict restraining payment in terms
of guarantee – liability absolute provided requirements
of
guarantee were met – disputes in relation to the construction
contract precluded – requirements for liability under
guarantee
met – Application for interdict dismissed.
JUDGMENT
MEYER
J
[1]
The applicant, Fast Track Contracting (Pty) Limited (Fast Track),
seeks an interdict preventing the first respondent, Constantia
Insurance Company Limited (Constantia), from paying out an ‘N/S
Construction Guarantee No 117961J’ (the guarantee)
in favour of
the third respondent, Group Five Coastal (Pty) Limited (Group Five
Coastal), acting as agents for the second respondent,
Group Five
Construction (Pty) Limited (Group Five Construction), (collectively
referred to as ‘Group Five’).
The underlying
agreement for which the guarantee was issued is a written
construction contract concluded between Fast Track, as
subcontractor,
and Group Five Coastal, acting as agents for Group Five Construction,
the contractor. The construction contract
is governed
inter
alia
by the terms of the JBCC N/S Subcontract Agreement, July
2007, Edition 5.0 (the subcontract). Group Five has called upon
Constantia
to make payment to it of the sum of R2 199 817.25
and Constantia has indicated that it would honour the guarantee. Fast
Track is disputing the entitlement of Group Five to call up the
guarantee, and hence the present application.
[2]
The guarantee records in clause 3.1 that:
‘
[a]ny reference in this
Guarantee to the Agreement is made for the purpose of convenience and
shall not be construed as any intention
whatsoever to create an
accessory obligation or any intention whatsoever to create a
suretyship.’
The
guarantee, as was said by Malan JA in
Firstrand Bank Ltd v Brera
Investments CC
2013 (5) SA 556
(SCA) para 2 about a guarantee
with a similar recordal, is-
‘
. . .
thus of the same nature as a performance guarantee, performance bond
or letter of credit and consists of an undertaking to
make payment of
an amount of money on the happening of a specified event (see Cloete
JA in
Dormell
Properties 282 CC v Renasa Insurance Co Ltd and Others NNO
2011
(1) SA 70
(SCA) ([2011]
1 All SA 557)
para 61). A guarantee of
this nature must be paid according to its terms, and liability under
it is not affected by the relationship
between other parties to the
transactions that gave rise to its issue, particularly not with
the question whether the subcontractor
performed in terms of his
contract with the contractor (see
Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others
2010
(2) SA 86
(SCA) paras 19 and 20;
Loomcraft
Fabrics CC v Nedbank Ltd and Another
[1995] ZASCA 127
;
1996
(1) SA 812
(A) ([1996]
1 All SA 51)
para 38; and
Minister
of Transport and Public Works, Western Cape, and Another v Zanbuild
Construction (Pty) Ltd and Another
2011
(5) SA 528
paras 11 – 15). The words of the guarantee under
consideration make it clear that it is not a suretyship but an
independent, and
not accessory, agreement that must be performed
according to its terms (see also
Compass
Insurance Co Ltd v Hospitality Hotel Developments (Pty) Ltd
2012
(2) SA 537
(SCA) para 15).’
[3]
Clause 4 of the guarantee envisaged that Constantia could incur
liability to Group Five Construction where the sum certified
in a
payment advice has not been paid. That clause reads as follows:
‘
4. Subject to the Guarantor’s
maximum liability referred to in clause 1 above, the Guarantor hereby
undertakes to pay the
Contractor the sum certified upon receipt of
the documents identified in clause 4.1 to 4.3 below:
4.1.
A copy of the first written demand issued by the Contractor to the
Subcontractor stating that payment of a sum certified by
the
Contractor in a payment advice has not been made in terms of the
Agreement and failing such payment within seven (7) calendar
days,
the Contractor intends to call upon the Guarantor to make payment in
terms of clause 4.2.
4.2.
A first written demand issued by the Contractor to the Guarantor’s
domicilium citandi et executandi
with a copy to the
Subcontractor stating that a period of seven (7) calendar days has
elapsed since the first written demand in
terms of clause 4.1 and the
sum certified has still not been paid: therefore the Contractor
calls up this N/S Construction
Guarantee and demands payment of the
sum certified from the Guarantor.
4.3. A copy of the payment advice
which entitles the Contractor to receive payment in terms of the
Agreement of the sum certified
in clause 4.’
[4]
The autonomy of letters of credit, demand guarantees, performance
bonds and similar documents is well recognised and it is only
where
fraud is involved that the issuing institution may decline
liability. (See
Brera
para
11.) In
Loomcraft
Fabrics CC v Nedbank Ltd and another
[1995] ZASCA 127
;
1996
(1) SA 812
(A) at 816B-G, Scott AJA said the following:
‘
The
autonomous nature of the obligation owed by the bank (whether the
issuing bank or, if there is one, the confirming bank) to
the
beneficiary under a credit has been stressed by courts both in
South Africa and overseas. (As to the former, see, for
example,
Phillips and
Another v Standard Bank of South Africa Ltd and Others
1985
(3) SA 301
(W);
Ex
parte Sapan Trading (Pty) Ltd
1995
(1) SA 218
(W) at 224I-225G.) An interdict restraining a bank
from paying in terms of a credit will accordingly not be granted at
the
instance of the buyer (the bank's customer) save in the most
exceptional cases. The approach of the Courts with regard to such an
interdict was stated by Kerr J in
R
D Harbottle (Mercantile) Ltd and Another v National Westminster Bank
Ltd and Others
[1977]
2 All ER 862
(QB) at 870
b
-
d
to
be as follows:
'It
is only in exceptional cases that the courts will interfere with the
machinery of irrevocable obligations assumed by banks.
They are the
lifeblood of international commerce. Such obligations are regarded as
collateral to the underlying rights and obligations
between the
merchants at either end of the banking chain. Except possibly in
clear cases of fraud of which the banks have notice,
the courts will
leave the merchants to settle their disputes under the contracts by
litigation or arbitration as available to them
or stipulated in the
contracts. The courts are not concerned with their difficulties
to enforce such claims; these are risks
which the merchants take. In
this case the plaintiffs took the risk of the unconditional wording
of the guarantees. The machinery
and commitments of banks are on a
different level. They must be allowed to be honoured, free from
interference by the courts. Otherwise,
trust in international
commerce could be irreparably damaged. . . .
Nonetheless, it
is now well established that a Court will grant an interdict
restraining a bank from paying the beneficiary under
a credit in the
event of it being established that the beneficiary was a party to
fraud in relation to the documents presented
to the bank for
payment. For, as was observed by Lord Diplock in
the
United City Merchants
case
supra
at
725
j
[
United City Merchants (Investments) Ltd and Others v
Royal Bank of Canada and Others
[1982] 2 All ER 720
(HL),
‘“
.
. . fraud unravels all". The courts will not allow their process
to be used by a dishonest person to carry out a fraud.’
But the fraud on
the part of the beneficiary will have to be
clearly established.
Tukan Timber Ltd v Barclays Bank
plc
[1987] 1 Lloyd's Rep 171 (QB) at 175. The
onus
,
of course, remains the ordinary civil one which has to be discharged
on a balance of probabilities but, as in any other case where
fraud
is alleged, it will not lightly be inferred. See
Gates v
Gates
1939 AD 150
at 155;
Gilbey Distillers &
Vintners (Pty) Ltd and Others v Morris NO and Another
1980 (2) SA
217
(SE) at 226A.’
[5]
In
Dormell
Properties 282 CC v Renasa Insurance Co Ltd & others NNO
2011
(1) SA 70
(SCA) para 64, Cloete JA, writing for the minority,
described the legal relationships that arise in relation to
construction guarantees
and associated construction agreements, in
the absence of fraud, as follows:
‘
Once the
appellant [the beneficiary] had complied with clause 5 of the
guarantee, the first respondent [the guarantor] had no defence
to
a claim under the guarantee. It still has no defence. The fact
that an arbitrator has determined that the appellant was
not entitled
to cancel the contract, binds the appellant — but
only
vis-a-vis
the
second respondent [the employer]. It is
res
inter alios acta
so
far as the first respondent is concerned. As the cases to which I
have referred above make abundantly clear, the appellant
did not have
to prove that it was entitled to cancel the building contract
with the second respondent, as a precondition to
enforcement of the
guarantee given to it by the first respondent. Nor does it have
to do so now.’
(The
minority judgment of Cloete JA, in which Mpati P concurred, was
subsequently endorsed by the Supreme Court of Appeal,
inter
alia
in
Brera
(para
10) and in
Coface
South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven
Housing Association
2014
(2) SA 382
(SCA) para 25.)
[6]
In casu
there is no suggestion of fraud on the part of Group
Five. Fast Track’s defence to the claim under the
guarantee is
that Group Five had not complied with clause 4 of the
guarantee. It argues that no binding payment advice was issued
in favour
of the contractor, Group Five Construction, since the one
on which reliance is placed was issued to ‘Group Five KZN (Pty)
Ltd’ (Group Five KZN) and not to Group Five Construction. The
payment advice, so Fast Track argues, thus does not entitle
Group
Five Construction to payment under the guarantee. Group Five,
on the other hand, argues that there was proper compliance
with
clause 4 of the guarantee.
[7]
As was said by Malan JA in
Brera
para 2, a ‘guarantee of
this nature must be paid according to its terms’. The
guarantor undertakes to pay the
beneficiary provided only that the
conditions specified in the guarantee are met. The liability of
the guarantor to the beneficiary
to honour the guarantee arises upon
presentment to the guarantor of the documents specified in the
guarantee. (
Loomcraft Fabrics
at 815G-J.) And, as
was said by Nugent JA in
OK Bazaars (1929) Ltd v Standard Bank of
South Africa Ltd
2002 (3) SA 688
(SCA) para 25, ‘[i]f the
presented documents do not conform with the terms of the letter of
credit the issuing bank is neither
obliged nor entitled to pay the
beneficiary without its customer’s consent’.
[8]
On 25 April 2018, Group Five Coastal sent an e-mail to Fast Track.
Attached to it was a payment certificate which showed
an amount due
to Group Five KZN. The payment certificate is signed by Mr
Melvin Murugan, the quantity surveyor of Group Five
Coastal under the
heading ‘APPROVED FOR PAYMENT’. It constitutes
clear certification of a sum in a payment advice
that has not been
made. Fast Track was given 21 days to effect payment.
Fast Track failed to make payment of the certified
amount. On
18 May 2018, Group Five Coastal issued a first written demand to Fast
Track calling for payment to be made within
seven days. The
request for payment of 25 April 2018 and the payment advice were
attached to that first written demand.
[9]
Fast Track failed to make payment of the certified amount. On
28 May 2018, Group Five Coastal sent a written demand to
Constantia
calling for payment under the guarantee. Attached to that
written demand were the first written demand sent to
Fast Track on 8
May 2018, the request for payment dated 25 April 2018 with the
payment advice attached thereto, a letter from FNB
confirming the
bank details of Group Five Construction and a cancelled cheque of
Group Five Construction.
[10]
In the building contract as well as in the guarantee the contractor
is described as Group Five Coastal acting as agents for
Group Five
Construction. Group Five Coastal changed its name to Group Five
KZN. A company may legally change its name.
(See
s
16(5)(b)(i)
of the
Companies Act 71 of 2008
.) A company is a
juristic person that is registered in terms of the
Companies Act.
(Section
1 defines a company
inter alia
as a juristic person
incorporated in terms of the
Companies Act 71 of 2008
or a juristic
person that immediately before the effective date was registered in
terms of the Companies Act 61 of 1973 other than
as an external
company as defined in that Act.) A company is assigned a
unique registration number (s 14(1)(a)) and
is a juristic person from
the date and time that the incorporation of a company is registered
(s 19(1)(a). It exists continuously
until its name is removed
from the Companies Register in accordance with the Companies Act.
Group Five KZN, therefore, is
Group Five Coastal.
[11]
The call on the guarantee was thus proper and compliant with the
requirements of clause 4 of the guarantee. A sum was
certified
as due and owing to Group Five Construction, a payment advice that
entitled Group Five Construction to payment had been
issued to Fast
Track and all the documents required in clauses 4.1 to 4.3 of the
guarantee were received by Constantia.
[12]
In the result the following order is made:
The
application is dismissed with costs, including those of senior
counsel.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing: 5 December 2018
Date
of judgment: 14 December 2018
Counsel
for applicant: MW Collins SC
Instructed
by: V Chetty Inc. La Lucia, Durban
C/o
SKV Attorneys, Randburg, Johannesburg
Counsel
for 2
nd
and 3
rd
Respondents:
GC Pretorius SC
Instructed
by: Cox Yeats Attorneys, Umhlanga Ridge, Durban
C/o
Cuzen Randeree, Victory Park, Johannesburg