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[2020] ZASCA 146
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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 (577/2019) [2020] ZASCA 146; 2021 (2) SA 137 (SCA) (13 November 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 577/2019
In
the matter between:
JOINT
VENTURE BETWEEN AVENG (AFRICA) (PTY) LTD
AND
STRABAG INTERNATIONAL
GmbH APPELLANT
and
SOUTH
AFRICAN NATIONAL ROADS
AGENCY
SOC
LTD FIRST
RESPONDENT
LOMBARD
INSURANCE COMPANY LTD SECOND
RESPONDENT
Neutral
citation:
Joint
Venture
between
Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South
African National Roads Agency Soc Ltd and Another
(Case no 577/2019)
[2020]
ZASCA 146
(13 November 2020)
Coram:
NAVSA,
SALDULKER and MAKGOKA
JJA
and GOOSEN and UNTERHALTER AJJA
Heard:
14 September 2020
Delivered:
This
judgment was handed down electronically by circulation to the
parties’ representatives via email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The time and date for
hand-down is deemed to be 10h00 on 13 November 2020.
Summary:
Contract
law – performance guarantee – whether in terms of the
underlying contract in this case the beneficiary under
a performance
guarantee was prevented from demanding payment.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Makhuvele J, sitting as court
of first instance): judgment reported sub nom
Joint
Venture
between
Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South
African National Roads Agency Soc Ltd and Another
[2019] ZAGPPHC 97;
[2019] 3 All SA 186
(GP).
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Makgoka
JA (Navsa and Saldulker JJA and Goosen and Unterhalter AJJA
concurring)
[1]
At the heart of this
appeal is whether the first respondent, the South African National
Roads Agency Soc Ltd (SANRAL), is restricted
by the underlying
contract between it and the appellant, a joint venture between Aveng
(Africa) (Pty) Ltd and Strabag International
GmbH (the Joint
Venture), from demanding payment in terms of a performance guarantee
issued in its favour by the second respondent,
Lombard
Insurance Company Ltd (Lombard).
The guarantee was issued pursuant to a written construction contract,
concluded between SANRAL and the Joint Venture in August
2017, for
the construction of the Mtentu River Bridge on the N2 Wild Coast Toll
Road in the Eastern Cape.
[1]
I will, in due course, deal with the terms of the guarantee.
[2]
In 2018 the relationship
between SANRAL and the Joint Venture broke down, with each party
purporting to terminate the contract.
The circumstances which led to
the termination of the contract are briefly these. From 22 October
2018 there were disruptions of
the works by some members of the local
community. Among other matters, the community demanded that the local
people be employed
to work on the project, and that some of the
materials be sourced from local suppliers. Some of the disruptions
took a violent
turn, and potentially endangered life and limb of the
Joint Venture’s staff and workers. It is common cause that, due
to
the disruptions, no works were performed from 22 October 2018. The
Engineer, acting on the instructions of SANRAL, suspended the
works
from time to time between 31 October 2018 and 13 January 2019.
[3]
Against this backdrop,
the Joint Venture, on 30 January 2019, gave SANRAL a notice
purporting to terminate the contract, effective
seven days after the
notice. The Joint Venture stated that the civil unrest and commotion
at the site constituted
force
majeure
[2]
which had prevented it from performing the works for a continuous
period of 84 days.
[3]
Having given notice of termination, the Joint Venture considered
itself entitled to be released from further performance of its
obligations under the contract.
[4]
[4]
SANRAL denied the
existence of
force majeure
and asserted that, if it ever existed, it had come to an end on 9
January 2019 following a meeting with the local community. It
had
communicated this to the Joint Venture and instructed it to resume
the works on 14 January 2019, which it refused to do. Accordingly,
SANRAL contested the Joint Venture’s entitlement to terminate
the contract. It gave the Joint Venture until 4 February 2019
to
withdraw its notice of termination and to return to site, failing
which SANRAL would itself exercise its right to terminate
the
contract. On 5 February 2019, after the Joint Venture failed to
return to site, SANRAL also purported to terminate the contract.
The
dispute as to whether the disruptions at the construction site
constituted
force majeure
,
which entitled the Joint Venture to terminate the contract, was
referred to arbitration in terms of clause 20 of the General
Conditions of the Contract, read with the Particular Conditions.
[5]
[5]
In the wake of the
second purported termination of the contract, the Joint Venture
sought SANRAL’s assurance that, pending
the arbitration
proceedings, it would not call up the guarantee. SANRAL not only
declined to give such assurance but notified the
Joint Venture of its
intention to do so. As a result, the Joint Venture applied to the
court a quo, the Gauteng Division of the
High Court, Pretoria, for an
interlocutory interdict, restraining SANRAL from calling up the
guarantee, pending the outcome of
the arbitration proceedings. The
Joint Venture asserted that SANRAL’s call on the guarantee
would be unlawful, as it had
not met certain conditions in the
underlying contract which limited its right to call up the guarantee.
I shall refer to those
conditions later
.
[6]
The application came
before Makhuvele J.
[6]
The learned judge did not decide the
Joint Venture’s assertion that SANRAL’s right to call up
the guarantee was limited
in the underlying contract. She remarked,
however, that had that been the only issue for determination, she
would have decided
it in favour of the Joint Venture.
[7]
She concluded that, on the facts of
the case, the Joint Venture had failed to make out a prima facie case
that the disruption of
the works constituted
force
majeure
.
[8]
Accordingly, Makhuvele J dismissed the
Joint Venture’s application with costs, but subsequently
granted it leave to appeal
to this court. Lombard did not take part
in the appeal and filed a notice to abide the decision of this court.
[7]
Before I consider the
Joint Venture’s submissions before us, it is necessary to
restate our jurisprudence on the nature and
effect of letters of
credit (which applies equally to performance guarantees). Our law is
well settled, and firmly recognises the
autonomy principle, ie the
autonomy of the performance guarantee from the underlying contract.
The principle is best expressed
in the oft-quoted passage from Lord
Denning MR’s speech in
Edward
Owen
:
[9]
‘
A bank which gives a
performance guarantee must honour that guarantee according to its
terms. It is not concerned in the least with
the relations between
the supplier and the customer; nor with the question whether the
supplier has performed his contracted obligation
or not; nor with the
question whether the supplier is in default or not. The bank must pay
according to its guarantee, on demand
if so stipulated, without proof
or conditions. The only exception is where there is a clear
fraud of which the bank has notice.’
[8]
Thus, in
Loomcraft
,
[10]
with reference to
Edward
Owen
and other decisions,
Scott AJA explained at
815G-J
:
‘
The
unique value of a documentary credit, therefore, is that whatever
disputes may subsequently arise between the issuing bank’s
customer (the buyer) and the beneficiary under the credit (the
seller) in relation to the performance or, for that matter, even
the
existence of the underlying contract, by issuing or confirming the
credit, the bank undertakes to pay the beneficiary provided
only that
the conditions specified in the credit are met. The liability of the
bank to the beneficiary to honour the credit arises
upon presentment
to the bank of the documents specified in the credit, including
typically a set of bills of lading, which on their
face conform
strictly to the requirements of the credit. In the event of the
documents specified in the credit being so presented,
the bank will
escape liability only upon proof of fraud on the part of the
beneficiary.’
[9]
Loomcraft
was
followed in a long line of decisions, which have consistently
recognised the autonomy principle.
[11]
The Joint Venture accepted this principle. However, it submitted that
our law should be developed to recognise an exception, so
that, where
the underlying contract restricts or qualifies a beneficiary’s
right to call up the guarantee, a contractor is
entitled to interdict
a beneficiary from doing so until the conditions in the underlying
agreement have been met (the underlying
contract exception). As I
have already said, the Joint Venture asserted that the proposed
exception would apply to the performance
guarantee currently before
us.
[10]
The exception relied
upon by the Joint Venture has received some attention in our
jurisprudence. It was, for example, mooted in
Union
Carriage
and
Wagon Co Ltd v Nedcor Bank
1996
CLR 724
(W).
The Full
Court there remarked, obiter,
[12]
that if it was agreed between a
beneficiary and a contractor in the underlying contract not to draw
on the letter of credit before
a specific event, and the beneficiary
nevertheless sought to exact payment, it could be guilty of fraud.
The question did not arise
in that case as there was no allegation of
such an agreement. In both
Sultzer
Pumps
[13]
and
Granbuild
[14]
the respective high courts found that the prohibition on the
beneficiaries from calling up the guarantees arose from the terms
of
the guarantees themselves, and not from the underlying contracts.
Therefore, the issue did not arise directly in those cases.
[11]
In
Kwikspace
[15]
this court was enjoined, by the contract between the parties, to
apply Australian law. Cloete JA concluded after an excursus on
Australian law that, in Australia, a contractor may restrain a
beneficiary from making demand on a performance guarantee if the
contractor can show the beneficiary would breach a term of the
building contract by doing so. At para 11 he said the following:
‘
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]
Recent Australian
authorities have continued on the path identified above. See, for
example,
Sugar Australia Pty
Ltd v Lend Lease Services Pty Ltd
[2015] VSCA 98.
There, with reference to
Fletcher
Construction Australia Ltd
,
[16]
Clough Engineering
[17]
and
Lucas
Stuart
,
[18]
the Victoria Court of Appeal (at paras
19-24) emphasised the importance of identifying the commercial
purposes for which a guarantee
was furnished when interpreting its
provisions, namely to provide security and, perhaps in addition,
[19]
to allocate the risk as to who,
between the employer and the contractor, shall be out of pocket
pending resolution of a dispute.
[13]
At para 25 the court
remarked:
‘
The fact that a performance
bond is intended to operate as a risk allocation device is not, of
course, necessarily determinative
of the right of a party to have
recourse to it. It may be subject to a contractual qualification or
limitation upon the circumstances
in which recourse may be had.’
[14]
In September this year,
in
Uber Builders and
Developers
,
[20]
Nichols J restated the position as
follows:
‘
Where
the contract does impose a condition on the right to access the
security, the party seeking to restrain recourse must establish
the
existence of a serious question to be tried as to whether the
beneficiary has in fact met the contractual requirements
.
’
[21]
[15]
English law appears to
have followed the same path, too. Eveleigh LJ in
Potton Homes Ltd
v Coleman Contractors
Ltd
(1984)
28 BLR 19
CA at 28 made the following obiter remarks:
‘
As
between buyer and seller the underlying contract cannot be
disregarded so readily. If the seller has lawfully avoided the
contract
prima facie, it seems to me he should be entitled to
restrain the buyer from making use of the performance bond. Moreover,
in principle
I do not think it possible to say that in no
circumstances whatsoever, apart from fraud, will the court restrain
the buyer. The
facts of each case must be considered. If the contract
is avoided or if there is a failure of consideration between buyer
and seller
for which the seller undertook to procure the issue of the
performance bond, I do not see why, as between seller and buyer, the
seller should not be unable to prevent a call upon the bond by the
mere assertion that the bond is to be treated as cash in hand.
[16]
27 years later, in
Simon
Carves Ltd v Ensus UK Ltd
[22]
,
the same conclusion was reached. Simon Carves was employed by Ensus
to construct a bioethanol plant. In terms of the contract,
Simon
Carves provided an unconditional, autonomous performance bond as
security for its performance of the contract. A dispute
arose between
the parties in respect of the underlying contract. Simon Carves
sought and obtained an injunction preventing Ensus
from making a call
on the bond. The head of the Technology and Construction Court,
Akenhead J, held that unless fraud is established,
a court will not
prevent a bank from paying out on a demand bond provided the
conditions of the bond itself have been complied
with (such as formal
notice in writing). ‘However’, noted the learned judge,
‘fraud is not the only ground upon
which a call on a bond can
be restrained by injunction’.
[23]
If the underlying contract clearly and
expressly prevents the beneficiary from making a demand under the
bond, it can be restrained
by the court from making a demand under
the bond.
[17]
For present purposes, I
am willing to assume that there is room in South African law to
follow the same path as that taken in Australian
and English law,
with the clear caveat expressed at the end of para 11 in
Kwikspace
.
[24]
The caveat will often provide the
basis to resolve the inherent tension between a performance
guarantee, framed without conditionality,
and usually required in
circumstances such as these, and an underlying contract that contains
some asserted restriction. Furthermore,
given the significance of
performance guarantees and letters of credit in international trade
and commerce, such claims as are
made by the Joint Venture in
relation to the underlying contract, should be approached with
caution.
[18]
I turn, first, to the
provisions of the performance guarantee, before considering the
relevant provisions of the underlying contract.
In relevant parts,
the guarantee reads as follows:
‘
3.
The Guarantor [Lombard] undertakes and agrees to pay SANRAL the …
amount of R 245 120 849.40 … including
VAT, or such
portion as may be demanded on receipt of a written demand from
SANRAL, which demand may be made by SANRAL if (in your
opinion and at
your sole discretion) the said contractor [the Joint Venture] fails
and/or neglects to commence the work as prescribed
in the contract or
if he fails and/or neglects to proceed therewith or if, for any
reason, he fails and/or neglects to complete
the services in
accordance with the conditions of the contract, or if he fails or
neglects to refund to SANRAL any amount found
to be due and payable
to SANRAL, or if his estate is sequestrated or if he surrenders his
estate in terms of the Insolvency Law
in force within the Republic of
South Africa.
4.
Subject to the above and without in any way detracting from your
rights to adopt any of the procedures set out in the contract,
the
said demand can be made by you at any stage.
5.
The said amount … including VAT, or such portion as may be
demanded may be retained by SANRAL on condition that after
completion
of the service, as stipulated in the contract, SANRAL shall account
to the guarantor showing how this amount has been
utilised and refund
to the guarantor any balance due.
6.
This guarantee is neither negotiable nor transferable and
(a)
must be surrendered to the guarantor at the time when SANRAL accounts
to the guarantor in terms of clause 5 above;
(b)
shall lapse upon the issue of the Taking Over Certificate in terms of
sub-clause 10.1 of the Conditions of Contract; and
(c)
shall not be interpreted as extending the guarantor’s liability
to anything more than payment of the amount guaranteed.’
[19]
As to the provisions of
the underlying contract, the Joint Venture relies on sub clause
4.2, read with sub-clauses 2.5 and
3.5 thereof. Sub-clause 4.2
regulates the circumstances in which SANRAL is permitted to make a
demand under the performance guarantee.
The relevant provisions of
sub-clause 4.2 read as follows:
‘
The
employer [SANRAL] shall not make a claim under the performance
security, except for an amount to which the employer is entitled
under the contract in the event of:
(a)
failure by the contractor [the Joint Venture] to extend the validity
of 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 termination under
sub-clause 15.2 [termination by employer], irrespective of whether
notice of termination has been given.
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.’
[20]
It is common cause that
sub-clauses (a), (b) and (c) are not applicable. The Joint Venture
relied on sub-clause 4.2(d). The ‘circumstances
which entitle
the employer to termination under sub-clause 15.2’ referred to
in that sub-clause are where SANRAL cancelled
the contract either on
the basis that the Joint Venture: failed to comply with a notice to
correct; had abandoned the works; or
demonstrated its intention not
to continue performance of its obligations. The Joint Venture raised
two contentions in relation
thereto.
[21]
First, it submitted that
the force of SANRAL’s cancellation on 5 February 2019 is
diminished by its own cancellation on 30
January 2019 on the basis
that
force majeure
prevented the execution of the works. Thus, so went the submission,
if it succeeds in an arbitration presently pending to prove
force
majeure
, and the consequent
lawfulness of its cancellation, SANRAL would then be precluded from
being able to comply with sub-clause 4.2(d).
This, according to the
Joint Venture, would be so because circumstances would never have
existed which could entitle SANRAL to
cancel the contract in terms of
clause 15.2.
[22]
I do not agree with the
Joint Venture’s submission. The entitlement that is referenced
is not one established under the dispute
resolution provisions of the
contract. That would contradict the clear wording in the indemnity in
clause 4.2. The indemnity compels
the interpretation that when clause
4.2 refers to an entitlement it means no more than the employer’s
claim to an entitlement
under one or the other of (a)–(d). So
interpreted, SANRAL’s entitlement to claim under the
performance security is
met because there is no dispute that SANRAL
claimed to be entitled to cancel the agreement. That the Joint
Venture has contended
otherwise by reason of
force
majeure
entails no
limitation of SANRAL’s entitlement to enforce the performance
security.
[23]
The Joint Venture’s
prospects of success in the pending arbitration is of no moment. In
Dormell
[25]
the parties had referred the dispute regarding the cancellation of
the contract to arbitration. By the time the appeal was heard
in this
court, the arbitrator had determined that the employer was at fault
regarding the cancellation of the contract. The majority
held that,
in light of the arbitrator’s determination, the contractor’s
guarantee could no longer be validly enforced.
The issue had
therefore, in the view of the majority, become academic. The appeal
was dismissed on this ground.
[26]
The minority disagreed and held that
t
he
fact that an arbitrator had determined that the employer was not
entitled to cancel the contract, binds the employer ─
but only
vis à vis
the contractor.
[27]
In
Coface
,
[28]
this court held that the majority decision in
Dormell
was ‘clearly wrong’.
[29]
[24]
The Joint Venture also
relied on the stipulation that there must be ‘an amount to
which SANRAL is entitled under the contract’
for SANRAL to make
a call on the guarantee. According to the Joint Venture, ‘an
amount’ can only accrue to SANRAL by
way of clause 2.5 of the
contract. That clause, titled ‘Employer’s Claims’,
reads:
‘
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…
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.’
[25]
The Joint Venture
submitted that SANRAL had to establish a factual basis for its
entitlement to make a call on the performance guarantee,
and that it
should be precluded from demanding payment under the guarantee until
that basis is established. The Joint Venture pointed
to the above
clauses as being indicative of the parties’ intention to
qualify SANRAL’s entitlement to make a call on
the performance
guarantee, and to limit that entitlement to instances where SANRAL is
entitled to an amount under the contract
through the application of
clauses 2.5 and 3.5, and SANRAL is, among others, in a position to
cancel the contract. In sum, the
Joint Venture asserted that the
trigger events in the guarantee have not arisen.
[26]
What should also be
borne in mind is the effect of the indemnity provision in clause 4.2,
which provides that SANRAL shall indemnify
the Joint Venture to the
extent that SANRAL was not entitled to make the claim. Thus, it is
contemplated that SANRAL might make
a demand in circumstances where
it is subsequently established that it was not entitled to do so.
Thus, properly construed, clause
4.2 does not need SANRAL to prove
its entitlement to make the demand at the time such demand is made.
If it elects to make the
demand, it does so at its own risk that it
might subsequently be required to repay the Joint Venture. Any
contrary construction
would render the indemnity provision
meaningless.
[27]
Clause 2.5 is to the
effect that, for SANRAL to make a call on the performance guarantee,
it must act in the bone fide belief that
it is entitled to payment
under the provisions of the agreement. Whether it is in fact so
entitled is immaterial at the time that
the call is made. There is no
suggestion that SANRAL’s call is actuated by malice or that its
stance, that it is entitled
to payment, is far-fetched. Regard must
also be had to the purpose for which the performance guarantee was
provided, which undoubtedly
was to secure SANRAL’s position in
the event of a dispute and pending resolution thereof.
[28]
As stated above, the
guarantee is an unconditional one. Its wording is instructive:
Lombard was obliged to pay ‘on receipt
of a written demand’
from SANRAL, which could be made if, in SANRAL’s ‘opinion
and … sole discretion’,
the Joint Venture had failed
and/or neglected to commence the work as prescribed, or if it had
failed and/or neglected to proceed
therewith, ‘
or
if, for any reason
, [it]
fails and/or neglects to complete the services in accordance with the
conditions of the contract’ [italics supplied].
The catch-all
provision,
viz.
‘any reason’, is important. The Joint Venture’s
failure to complete the project, be it due to
force
majeure
or otherwise, falls
into this category. In other words, the reason for such failure is
irrelevant. That the Joint Venture considered
itself to have been
prevented by
force majeure
is immaterial as far as this provision is concerned.
[29]
In
Eskom
Holdings Soc Ltd v Hitachi Power Africa (Pty) Ltd and Another
[2013]
ZASCA 101
, this court had to construe a guarantee with similarly
worded provisions to clauses 4.2 and 2.5 presently before us. The
Hitachi
clause 2.5 was differently worded to the one under consideration in
two minor respects. Whereas the present clause provides that
the
notice shall be given as soon as practicable after SANRAL became
aware of the event or circumstances giving rise to the claim,
the
Hitachi
clause
was silent in this respect. The second difference relates to the role
of the engineer, to determine the amount to which Eskom
was entitled.
There was no such provision in the
Hitachi
clause.
[30]
The contractor advanced
a similar argument to that of the Joint Venture, namely that the
employer, Eskom, was prohibited from making
a demand on the
performance guarantee as it had not complied with similar clauses to
the ones under consideration. Mthiyane AP
rejected the argument, and
made the following trenchant observations at paras 17 and 18 about
these clauses:
‘
Finally
under the requirement of notice provisions of clause 2.5, it has
relevance only in relation to a claim under the guarantee
made in
terms of sub-clause 4.2(b), dealing with the circumstances entitling
the employer to terminate under sub-clause 15.2, irrespective
of
whether notice of termination has been given.
The
requirements of clause 2.5 are not to be read into the whole of
clause 4.2 – as did the high court – otherwise the
specific reference to clause 2.5 in sub-clause 4.2(b) would become
tautologous. Eskom in this regard makes no claim for payment
under
the construction contract, but in exercising a right which it has,
under the construction contract, to make demand upon the
Bank in
terms of the guarantees themselves. Hence the obligation to pay
arises from the terms of the guarantee and not from the
conditions of
the construction contract to which the Bank is not a party.
Furthermore, the provisions of the guarantees, which
gives rise to an
entirely separate cause of action to which Hitachi is not a party, do
not incorporate whether by reference or
at all, clause 2.5 of the
construction contract nor any like provision.’
[31]
The Joint Venture sought
to distinguish the
Hitachi
provision equivalent to the present clause 2.5 on two bases. First,
that in that case an application for an interdict was made
after
demand had been made in terms of the performance guarantees. In my
view this makes no difference. The issue is one of principle
rather
than of procedure. Second, the Joint Venture submitted that there are
material differences between the present clause 2.5
and the
Hitachi
equivalent. I have already
shown that those differences are not material.
Hitachi
is therefore not distinguishable.
[32]
The Joint Venture has
failed to show that the parties had intended anything other than that
SANRAL would be entitled to payment
before any underlying dispute
between them is determined. Accordingly, the appeal must fail. The
following order is made:
The
appeal is dismissed with costs, including the costs of two counsel.
____________________
T
M Makgoka
Judge
of Appeal
APPEARANCES:
For
Appellant: PMM Lane SC (with him CJ Mc Aslin)
Instructed
by:
Pinsent
Masons South Africa Inc, Sandton
Lovius
Block, Bloemfontein.
For
First Respondent: CE Watt-Pringle SC (with him A Glendinning and
S Tshikila)
Instructed
by:
Cliffe
Dekker Hofmeyr Inc, Sandton
Symington
de Kok, Bloemfontein.
[1]
The contract comprised of
the standard form Fédération Internationale des
Ingénieurs-Conseils (FIDIC)
Conditions
of Contract for Construction for Building and Engineering Works
designed by the Employer
(1999), the so-called FIDIC Red Book, which contains general
conditions, guidance for the preparation of particular conditions,
and annexes: forms of letter of tender, contract agreement and
dispute adjudication agreement.
[2]
In terms of sub-clause
19.1 of the contract,
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;
(iv) munitions of war,
explosives 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.’
[3]
In terms of sub-clause
19.6:
‘
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
]
… then either Party may give to the other Party a notice of
termination of the contract [which] shall take effect 7 days
after
the notice is given…’
[4]
In
terms of sub-clause 19.2, a party having given notice of the
force
majeure
‘shall … be excused of its obligations for as long as
such
force
majeure
prevents it from performing them. This sub-clause should be read
with sub-clause 19.7, which provides for the release from
performance under law:
‘
[I]f
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.’
[5]
We
were informed by counsel during the hearing of the appeal that the
arbitration had not yet taken place.
[6]
The judgment of
Makhuvele J is reported as
Joint
Venture between Aveng (Africa) (Pty) Ltd and Strabag International
GmbH v South African National Roads Agency Soc Ltd and
Another
[2019] ZAGPPHC 97; [2019] 3 All SA 186 (GP).
[7]
Ibid para 120.
[8]
Ibid para 122
et
seq
.
[9]
Edward
Owen Engineering Ltd v Barclays Bank International Ltd
[1978]
1 All ER 976
(CA) 983b-d.
[10]
Loomcraft Fabrics CC
v Nedbank Ltd and Another
1996 (1) SA 812 (A).
[11]
See,
for example,
Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others
[2009]
ZASCA 71
;
2010 (2) SA 86
(SCA) paras 20-21;
Minister
of Transport and Public Works, Western Cape and Another v Zanbuild
Construction (Pty) Ltd and Another
[2011] ZASCA 10
;
2011 (5) SA 528
(SCA);
Compass
Insurance Co Ltd v Hospitality Hotel Developments (Pty) Ltd
[2011]
ZASCA 149
;
2012 (2) SA 537
(SCA) para 15;
Guardrisk
Insurance Company Ltd and Others v Kentz (Pty) Ltd
[2013]
ZASCA 182
;
[2014] 1 All SA 307
(SCA) para 14;
FirstRand
Bank Ltd v Brera Investments CC
[2013] ZASCA 25
;
2013 (5) SA 556
(SCA) para 2;
Coface
South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven
Housing Association
[2013]
ZASCA 202
;
2014 (2) SA 382
(SCA) paras 12-13 and 25, which
overturned the majority decision of Bertelsmann AJA in
Dormell
Properties 282 CC v Renasa Insurance Co Ltd and Others NNO
[2010] ZASCA 137
;
2011 (1) SA 70
(SCA) paras 40-41 and approved the
view of the minority (per Cloete JA) which had followed the
decisions referred to above (see
paras 64-65).
[12]
Union Carriage and
Wagon Co Ltd v Nedcor Bank
1996 CLR 724
(W) at 735.
[13]
Sulzer Pumps (South
Africa) (Pty) Limited v Covec-MC Joint Venture
[2014] ZAGPPHC 695.
[14]
Granbuild (Pty) Ltd v
Minister of Transport and Public Works, Western Cape and Another
[2015] ZAWCHC 83.
[15]
Kwikspace Modular
Buildings Ltd v Sabodala Mining Co Sarl and Another
[2010] ZASCA 15; 2010 (6) SA 477 (SCA).
[16]
Fletcher Construction
Australia Ltd v Varnsdorf Pty Ltd
[1998] 3 VR 812.
[17]
Clough Engineering
Ltd v Oil & Natural Gas Corporation
Ltd [No 3] (2008) 249 ALR 458.
[18]
Lucas Stuart Pty Ltd
v Hemmes Hermitage Pty Ltd
[2010] NSWCA 283.
[19]
See Callaway JA’s
observations in
Fletcher
Construction
(above
fn 16) at 826-827:
‘
There are broadly
two reasons why the beneficiary may have stipulated for a guarantee.
One is to provide security. If it has a
valid claim and there are
difficulties about recovering from the party in default, it has
recourse against the bank. The second
reason, which is additional to
the first, is to allocate the risk as to who shall be out of pocket
pending resolution of a dispute.
The beneficiary is then able to
call upon the guarantee even if it turns out, in the end, that the
other party was not in default.
It is a question of construction of
the underlying contract whether the guarantee is provided solely by
way of security or also
as a risk allocation device. Remembering
that we are speaking of guarantees in the sense of standby letters
of credit, performance
bonds, guarantees in lieu of retention moneys
and the like, the latter purpose is often present and commercial
practice plays
a large part in construing the contract.’
[20]
Uber Builders and
Developers Pty Ltd v MIFA Pty Ltd
[2020] VSC 596.
[21]
Ibid para 26. (Footnotes
omitted.) See also
Dedert
Corporation v United Dalby Bio-Refinery Pty Ltd
[2017] VSCA 368
and
Siemens
Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd
[2019] VSCA 318.
[22]
Simon Carves Ltd v
Ensus UK Ltd
[2011] EWHC 657 (TCC).
[23]
Ibid para 33.
[24]
Kwikspace
(above
fn 15).
[25]
Dormell Properties
(above
fn 11).
[26]
Ibid paras 45-46.
[27]
Ibid paras 64-65.
[28]
Coface South Africa
Insurance Co
(above
fn 11).
[29]
Ibid para 25.