About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2007
>>
[2007] ZASCA 112
|
|
Lombard Insurance Company Ltd. v City of Cape Town (411/06) [2007] ZASCA 112; [2007] SCA 112 (RSA); [2008] 2 All SA 400 (SCA); 2008 (2) SA 423 (SCA) (21 September 2007)
Links to summary
IN
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE NO: 441/06
Reportable
In the matter
between:
LOMBARD
INSURANCE COMPANY LIMITED
.......................
APPELLANT
and
CITY
OF CAPE TOWN
.......................
RESPONDENT
____________________________________________________________________________
CORAM: HOWIE P, MTHIYANE, CLOETE, COMBRINCK JJA
et MHLANTLA AJA
HEARD: 15 AUGUST 2007
DELIVERED: 21 SEPTEMBER 2007
SUMMARY:
Interpretation of a guarantee.
NEUTRAL CITATION: This judgment may be referred
to as
Lombard Insurance v City of
Cape Town
[2007] SCA 112 (RSA)
____________________________________________________________________________
J U D G M E N T
____________________________________________________________________________
MHLANTLA AJA
MHLANTLA AJA
[1] This is an appeal, with the leave
of this court, against the judgment and order of the Cape High Court,
in which Davis J ordered
the appellant to pay to the respondent the
sum of R297 806.16 together with interest thereon at a rate of
15,5 per cent per
annum as well as the respondent’s costs.
[2] During December 1999, the respondent’s
predecessor in title, the Cape Metropolitan Council (‘CMC’),
issued a
tender for civil engineering construction works for the
control of odours and upgrading of the primary sludge removal system
and
associated civil works for the Cape Flats Waste Water Treatment
Works defined as contract no WW38/99. On 13 January 2000 a joint
venture between Labor Construction Company (Pty) Ltd (‘Labor’)
and South African Focus Projects (‘SA Focus’)
submitted a
tender to perform the works.
[3] On 9 February 2000, Gibbs Africa
Consulting Civil Engineers (‘Gibbs Africa’), acting on
behalf of CMC, notified the
Labor/SA Focus joint venture in writing
of the award of the tender as well as the conditions attaching
thereto. These included the
submission by the joint venture of an
institutional guarantee as well as proof of insurance.
[4] The appellant, Lombard Insurance
Company Limited, had previously issued a guarantee on behalf of Labor
in respect of a contract
between Labor and CMC and had maintained a
risk profile on Labor. On 10 February 2000 Labor submitted an
application to the appellant
for the issue of an institutional
guarantee in respect of the tender.
[5] On 17 February 2000, the appellant issued an
institutional guarantee in favour of CMC. The guarantee recorded that
Labor, referred
to in the guarantee as ‘the contractor’,
had entered or was about to enter into a contract with CMC for the
contract
no WW38/99. The appellant undertook to pay the sum of
R297 806.16 in the event of Labor, inter alia, failing to
proceed with
and complete the works or being placed under provisional
or final liquidation or judicial management. It is this guarantee
that is
in issue.
[6] On 26 May 2000, a written joint
venture agreement was concluded between Labor and SA Focus to
undertake the works under contract
no WW38/99. Clause 5 of the
agreement provided that Labor would provide the financial resources
for the execution of the work, including
the institutional guarantee
as required in terms of the contract, and that SA Focus would provide
the management team and labour
resources required on site.
[7] On 9 June 2000, CMC and the joint
venture concluded a written civil engineering contract, whereafter
the works commenced. On 22
June 2001 Labor was placed under
provisional liquidation. CMC thereafter demanded payment of the
guaranteed amount from the appellant,
which in turn denied liability,
stating the following in a letter dated 28 August 2001:
‘
At all relevant times, we were under the
impression that the contract was to be concluded with Labor
Construction Company (Pty) Ltd
and we were not aware of the fact that
the contract was in fact to be concluded with the joint venture.
This is borne out by the fact that our guarantee
refers only to Labor Construction Company (Pty) Ltd. In view of the
fact that the
contract was not awarded to Labor Construction Company
(Pty) Ltd but rather to a joint venture, it is our contention that we
are
not liable in terms of the guarantee.’
[8] The plaintiff (now respondent)
thereafter instituted an action claiming payment of the guaranteed
sum. The appellant pleaded that
contract no WW38/99 was not entered
into between Labor and CMC but rather between CMC and a joint
venture. It further pleaded that
it had issued a guarantee to cover
Labor’s performance only and that accordingly, it was not
indebted to the respondent.
[9] During the trial the respondent
did not adduce any oral evidence, merely placing documents before the
trial court upon which it
relied. The appellant called Ms Catharina
Belcher, its general manager, who outlined the policies and
procedures adopted by it when
considering applications for the issue
of guarantees.
[10] At the conclusion of the trial,
Davis J made a finding in favour of the respondent. He held as
follows:
‘
In my view, the wording of the contract for
an institutional guarantee concluded between Labor and the defendant
is more than capable
of a construction to the effect that the
intention of such an agreement was to indemnify the obligations of
Labor. No legal principle
was raised by the defendant which would run
counter to this conclusion. One of the express purposes of the
guarantee was to protect
CMC in the event that Labor was liquidated
or placed into judicial management. Given that this interpretation of
the contract is
both plausible and indeed reasonable, it is my view,
that plaintiff was entitled to payment in terms of the guarantee.’
[11] The main issue on appeal is the
proper interpretation of the guarantee. Simply put, what was the
guarantee?
[12] Counsel for the appellant
submitted that the guarantee was issued to cover the due performance
of Labor in respect of the contract
in the event that Labor concluded
the contract with CMC. The contract was, however, concluded between
CMC and a joint venture. Counsel
contended that the appellant was not
liable as the condition governing the guarantee had not been
fulfilled; furthermore that the
joint venture had not yet been formed
when the guarantee was issued. Counsel argued in the alternative that
the guarantee was void
ab
initio
as there was
no consensus between the parties.
[13] Counsel representing the
respondent conceded that it would have been preferable to obtain a
guarantee covering the joint venture.
He submitted, however, that the
respondent was entitled to rely on the guarantee even though the
contract contemplated in the guarantee
was not concluded between CMC
and Labor as sole contractor, but between CMC and a joint venture of
which Labor was a partner.
[14] I turn now to consider the
proper construction to be placed on the guarantee and, in particular,
to the question whether the
guarantee is capable of being extended to
cover a contract entered into by the respondent and a joint venture
in which Labor was
a partner.
[15] In my view, the grammatical and ordinary meaning of
the language of the guarantee is clear and unambiguous. It is evident
therefrom
that the appellant guaranteed due performance by Labor, in
the event of Labor being the contractor in a contract it concluded
with
CMC. Theoretically it would have been possible, as the court a
quo pointed out, for the appellant to have guaranteed the obligations
of Labor in terms of the joint venture. But I am quite unable to give
the guarantee that meaning. What the appellant guaranteed was
the
performance of the contractor’s obligations. The contractor was
defined as Labor. The guarantee envisages that ‘the
contractor’
ie Labor, and (by implication) only Labor, would complete ‘the
works’ defined as contract no WW38/99
– not that the
works would be completed by another unnamed person. There can be no
doubt that, on a proper interpretation,
the guarantee covered Labor
and not the joint venture.
[16] It is accordingly clear that the
cause of action is based on a guarantee being claimable in the event
that Labor concluded a
contract with the respondent. The guarantee
covered various eventualities provided the contract was between Labor
and CMC. The contract
was however concluded between CMC and the joint
venture of which Labor was a partner.
[17] It was submitted on behalf of
the respondent that the only material requirement for the appellant
to be liable in terms of the
guarantee is that Labor must have
entered into a contract with CMC and that the capacity in which Labor
contracted with CMC is not
relevant.
[18] This submission is, in my view,
without merit. The appellant undertook to guarantee the obligations
of ‘the contractor’
as defined, and not the obligations
of a contracting party (whomsoever that might be) on whose behalf
Labor would enter into the
contract. It has to be borne in mind that
the obligations of a partnership and those of the individual partners
in their personal
capacities are not, in the absence of an agreement,
interchangeable. See
Standard
Bank of S.A. Ltd v Lewis
.
1
[19] In my view, the learned judge
erred when he held that, because Labor was a partner in the joint
venture, it was therefore a party
to the contract. I consider that
the court a quo should as a starting point, have attempted to
determine the intention of the parties
to the guarantee. It was never
the intention of Labor and the appellant to extend the guarantee to
cover Labor’s performance
as a partner in a joint venture. That
would be going beyond the language of the guarantee.
[20] Even if it be accepted that the guarantee was
ambiguous, in that it could as a matter of linguistic construction be
interpreted
to cover either Labor’s obligations as a sole
contractor or Labor’s obligations even if it was not the sole
contractor,
the background circumstances show that this latter
meaning could never have been intended by the parties: not by Labor,
because its
obligations to CMC and to SA Focus were to obtain a
guarantee for the obligations of both partners to the joint venture;
not by the
appellant, because the appellant was unaware of the
existence of SA Focus; and not by CMC because it required a guarantee
covering
the obligations of the joint venture, not one of the
partners in the joint venture.
[21] It is accordingly evident that the appellant did
not undertake to secure the obligations of the joint venture or of
Labor as
a partner in a joint venture. The guarantee covered Labor as
a sole entity. It follows therefore that the appellant cannot be held
liable for the obligations of the joint venture.
[22] This conclusion renders it
unnecessary to decide the defence of mutual mistake raised by the
appellant.
[23] As regards the question of
costs, counsel for the respondent contended that the matter did not
warrant the employment of two
counsel. I do not agree. In my view
this matter is of importance not only to the insurance industry but
to local authorities as well.
It raises issues on how to deal with
guarantees of this kind in future and there are public policy
considerations to be borne in
mind. I am satisfied that the matter
warranted the employment of two counsel.
[24] In the result, the following
order is made:
24.1 The appeal is upheld with costs,
such costs to include the costs consequent upon the employment of two
counsel.
24.2 The order of the court a quo is
set aside and substituted with the following order: ‘The action
is dismissed with costs’.
__________________
N Z MHLANTLA
ACTING JUDGE
OF APPEAL
CONCUR
:
HOWIE P)
MTHIYANE JA)
CLOETE JA)
COMBRINCK JA)
1
1922
TPD 285
at 289, 293 and 295.