About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2019
>>
[2019] ZASCA 14
|
|
Raubex Construction (Pty) Ltd v Bryte Insurance Company Ltd (337/2018) [2019] ZASCA 14; [2019] 2 All SA 322 (SCA) (20 March 2019)
Links to summary
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA JUDGMENT
Reportable
Case
No: 337/2018
In
the matter between:
RAUBEX CONSTRUCTION (PTY)
LTD APPELLANT
and
BRYTE
INSURANCE COMPANY
LTD RESPONDENT
Neutral
citation:
Raubex Construction v Bryte Insurance Company
(337/2018)
[2019] ZASCA 14
(20 March 2019)
Coram:
Leach, Swain, Mathopo, Makgoka JJA and Eksteen AJA
Heard:
19 February 2019
Delivered:
20 March 2019
Summary
:
Construction contract – retention guarantee issued by insurance
company in lieu of retention money – construction
company
calling on insurer to make payment – insurer contending that
guarantee limited to defects arising after issue of
certificate of
completions, that amount claimed not a correct estimate of cost of
remedying such defects and that the claim was
fraudulent – on
proper interpretation of main and subcontract, retention guarantee
related to all defects and not only those
arising after certificate
of completion – fraud not established – insurer liable.
ORDER
On
appeal from:
Gauteng Division of the High Court, Johannesburg
(Fisher J, Van Oosten and Weiner JJ concurring sitting as court of
appeal):
1. The appeal is allowed,
with costs.
2. The order of the court
a quo is set aside and replaced with the following: ‘The appeal
is dismissed, with costs.’
JUDGMENT
Eksteen
AJA (Leach, Swain, Mathopo and Makgoka JJA concurring):
[1]
The dispute in this appeal relates to a ‘Retention Money
Guarantee’ (the guarantee) issued by the respondent (Bryte)
in
favour of the appellant (Raubex) pursuant to a construction contract.
When Raubex called upon Bryte to make payment in terms
of the
guarantee Bryte declined to do so. Raubex therefore successfully
applied to the high court to compel payment under the guarantee.
An
appeal to the Full Court followed with the result that the order in
favour of Raubex was set aside. Raubex appeals against that
finding
with special leave obtained from this Court.
[2]
During 2013, Raubex, a civil construction company, successfully
tendered for and secured a contract (the main contract) with
Eskom
for the construction of an Eskom Operations and Management Office and
Visitors Centre. Upon the award of the contract, Raubex
subcontracted
a portion of the works to Peak Star 133 (Pty) Ltd, trading as Dolphin
Construction (Dolphin). The subcontract provided
for 10 % of the
contract price to be withheld as and for retention money during the
contract period. Raubex, however, waived its
rights to retain any
retention money against the delivery of a satisfactory retention
money guarantee. Hence the guarantee by Bryte.
[3]
Dolphin executed the works which reached practical completion on 29
October 2014. A certificate of completion in terms of the
subcontract
was issued on 31 October 2014, together with a ‘punch list’
setting out incomplete and defective work which
still had to be
performed after the issuing of the certificate. A dispute arose later
between Raubex and Dolphin in respect of
the work listed in the punch
list and, by February 2015, Dolphin refused to perform any further
remedial work.
[4]
In these circumstances Raubex called upon Bryte to make payment in
the amount of R1 409726.11 in terms of the guarantee, which,
as
recorded earlier, Bryte declined to do. Bryte contends that the
demand for payment in terms of the guarantee does not comply
with the
provisions of the guarantee itself as it contained fraudulent
misrepresentations. Bryte alleges that, to the knowledge
of Raubex,
Dolphin was not in breach of its contract and no money was therefore
due and payable. In any event, even if it is found
that Dolphin was
in breach the cost to remedy the breach could, to the knowledge of
Raubex, not have amounted to the sum claimed.
In any event, so the
argument went, Bryte was released from liability by the fraud of
Raubex. The alleged fraud by Raubex lies
at the heart of each
argument.
[5]
I turn to consider the terms of the guarantee. The material portion
of the guarantee records:
‘
The Guarantor
renounces the benefits of excussion and division and undertakes to
pay to (Raubex) upon demand all such monies as
(Raubex) may require
to be paid to it in lieu of any retention monies which have been
repaid by (Raubex) to (Dolphin) and which
(Dolphin) would otherwise
be liable to pay to (Raubex) under and in terms of the Subcontract,
and such monies shall be paid by
the Guarantor conditionally upon
receipt of demand from (Raubex) that any such retention monies are
due and payable to (Raubex)
by (Dolphin) as provided for in terms of
the Subcontract, provided however, that the liability to the
Guarantor hereunder shall
not exceed the sum of R1686721.89 (One
Million Six Hundred and Eighty Six Thousand Seven Hundred and Twenty
One Rand and Eighty
Nine Cents) and is subject to the following
further conditions:
(1) Each demand by
(Raubex) shall be in writing signed by (Raubex) and delivered to the
Guarantor . . . and shall be accompanied
by a certificate complying
with Clause 2, signed by (Raubex’s) authorised representative.
(2) Each demand by
(Raubex) shall certify:
(a) That the signatory is
(Raubex’s) authorised representative;
(b) That (Dolphin) is in
breach of its obligations under the Subcontract; and (Raubex) is
entitled to be paid amounts for which
(Dolphin) is liable under the
Subcontract; and
(c) That the amount
demanded, which amount the certificate shall specify:
(i) Does not exceed the
amount of Retention monies which, but for this Guarantee, would have
been retained by (Raubex) as Retention
Monies in terms of the
Subcontract at the date of the certificate, less the aggregate of the
amounts, if any, of retention money
and other securities actually
retained or held by (Raubex) in terms hereof; and
(ii) Does not
exceed a good faith estimate of the costs to (Raubex) of having the
breach referred to in paragraph (b) remedied
less aggregate (sic) of
any amounts withheld by (Raubex) from payments due to (Dolphin) in
terms of the Subcontract by reason of
the breach referred to, and any
amount of the Retention money actually held by (Raubex) save to the
extent that the same had been
deducted from any previous demand in
terms hereof.
(3) The Guarantor shall
within 21 days after its receipt of a demand complying with the
provisions of Clause 1 and 2 make payment
to (Raubex) of the amount
demanded at such address as (Raubex) should in writing notify the
Guarantor.
(4) Subject to compliance
with the provisions hereof, the Guarantor’s liability to make
the payment herein referred to shall
be unconditional and shall not
be affected or diminished by any disputes, claims or counterclaims
between (Raubex) and the Subcontractor.
(5) . . .’
[6]
The nature
of the guarantee is to be determined by its terms.
[1]
There may be instances where a guarantee may be no more than an
accessory obligation.
[2]
In this
case, however, there is no dispute between the parties that they
intended the guarantee to be a separate contract enforceable
on its
terms. They expressly made the guarantee unconditional,
[3]
subject only to compliance with the terms and conditions in respect
of the demand to be made. Upon compliance with the terms of
the
guarantee, the guarantor cannot escape liability thereupon unless
there is proof of fraud on behalf of the beneficiary.
[4]
A party alleging fraud attracts the onus to establish it, which is
not to be easily inferred.
[5]
[7]
On 26 February 2015, Raubex called upon Bryte to make payment of the
amount of R1 409726.11. The demand was made in writing
accompanied by
a certificate which complies,
prima facie
, in all respects
with para 2 of the guarantee. The Court
a quo
, however,
concluded that the demand made was not in accordance with the terms
of the guarantee. It reasoned that the reference
in para 2(c)(ii) of
the guarantee to ‘good faith’ estimates of the costs of
having the breach referred to remedied,
required the certification to
contain a substantive specification or statement to enable an
objective assessment whether the estimate
is made on a proper basis.
It accordingly concluded that it was not enough for Raubex to show
that there had been a formal process
of certification of good faith;
it also had to show that the certification was, in fact, made in the
honest belief that it was
a correct estimate of what it was entitled
to be paid under the guarantee.
[8]
I can find no justification for this conclusion in the guarantee.
What the court
a quo
in effect did was to place the onus upon
Raubex to prove that it did not act fraudulently. Such a conclusion,
in my view, is clearly
incorrect. An allegation of fraud is a serious
charge and the onus to prove it clearly and distinctly will always
rest on the party
making such allegation. Absence of fraud was not
part of Raubex’s cause of action and it bore no onus in this
regard. Whereas
the demand in this case was made in accordance with
the terms of the guarantee, Bryte was obliged to make payment in
terms of the
guarantee unless it was able to establish fraud on the
part of Raubex.
[9]
It is necessary to consider briefly the sequence of the events relied
upon by Bryte in argument in order to understand the alleged
fraud in
respect of Dolphin’s alleged breach of contract. A number of
‘punch lists’ were issued by Raubex to
Dolphin during the
construction period and prior to the issue of certificate of
completion. The ‘punch list’ which
was ultimately annexed
to the certificate of completion is materially the same as the punch
lists which were previously issued.
Bryte alleges, with support of an
affidavit by one Van Niekerk, who professes to be the Chief Executive
Officer of Dolphin, that
Dolphin had attended to the items on the
punch lists prior to the issue of the certificate of completion and
that they were therefore
not in breach of their contract. Raubex, on
the other hand, denies that the matters listed in the punch list were
adequately attended
to and it relies on the punch list annexed to the
certificate of completion for its allegation of breach of contract.
By virtue
of the provisions of para 4 of the guarantee the dispute
between Raubex and Dolphin in this regard is immaterial to the
liability
of Bryte. The mere say so of Van Niekerk, falls far short
of what would be required to establish fraud on the part of Raubex in
respect of the existence of a breach.
[10]
It is common cause that during the construction phase Dolphin had
provided a performance guarantee to Raubex in terms of the
subcontract. The performance guarantee was returned upon the issue of
the certificate of completion. The only remaining security
Raubex had
at its disposal was a guarantee in respect of retention money. Bryte,
however, could only be liable to Raubex for such
an amount, in lieu
of retention money, as Dolphin would have been liable for to Raubex
in terms of the subcontract. On behalf of
Bryte it is argued that
retention money is held to secure the obligation of the contractor to
remedy the defective work which is
discovered after the issue of the
completion certificate. It is accordingly contended that Bryte could
only incur liability to
Raubex in respect of defective work which
manifests after the issue of completion certificate, as opposed to
work which remained
incomplete at the time of the issue of the
certificate of completion. The completion of works stipulated under
the subcontract
is secured under the performance guarantee and
therefore, so it is argued, the issue of the completion certificate
certifies the
completion of the contract.
[11]
The ‘punch list’ annexed to the certificate of completion
referred to a number of items which Raubex contended
remained
incomplete and which had manifested prior to the issue of the
certificate of completion. Accordingly, it is contended
that Raubex
fraudulently misrepresented to Bryte that these constituted
‘defects’. Counsel for Bryte was buoyed in
this
submission by the pronouncement by the court a quo that the purpose
of a guarantee of the kind given is to secure the obligations
of a
contractor to remedy defects in workmanship found after the
completion of the works. This dictum appears at the commencement
of
the judgment, as a point of departure in the court a quo, and was
pivotal to its ultimate finding of fraud. No authority was
provided
for this proposition which for the reasons set out below is clearly
wrong.
[12]
The guarantee was provided in lieu of the retention of the money
stipulated in the subcontract as retention money. The purpose
for
which such money could be retained must necessarily be determined by
a process of interpretation of the contract. Although
the subcontract
was annexed to the founding affidavit, Raubex placed no reliance on
its terms as it sought to implement the guarantee
as a separate
independent contract. However the subcontract expressly incorporates
all the general conditions of the main contract
in the subcontract,
save where they are inconsistent with the express provisions of the
subcontract. It records further that the
subcontractor has like
rights and responsibilities in relation to the contractor as the
contractor has in relation to the employer
in the main contract.
[13]
In these circumstances Bryte delivered a notice in terms of Rule
35(12) and (14) of the Uniform Rules of Court calling for
a copy of
the main contract. Raubex obliged and the main contract was duly
delivered and forms part of the papers before us. Bryte
relies on the
terms of the subcontract for its contention that retention money
secures the obligation of the contractor to make
good defects
discovered after the completion of the works. It argues, however,
that, notwithstanding the incorporation of the terms
of the main
contract in the subcontract, the court is precluded from having
regard to the terms of the main contract in circumstances
where
neither party has made any reference thereto.
[14]
It is true that it is not open to a party in application proceedings
to attach volumes of annexures to affidavits without identifying
the
portion relied upon. In
Swissborough Diamond Mines Pty Ltd &
others v Government of the Republic of South Africa & others
1999
(2) SA 279
(T) at 324F-G the principle was set out in the following
terms:
‘
Regard being had
to the functions of the affidavits, it is not open to an applicant or
respondent to merely annex to its affidavits
documentation and to
request the court to have regard to it. What is required is the
identification of the portions thereof on
which reliance is placed
and an indication of the case which is sought to be made out on the
strength thereof. If this were not
so the essence of the established
practice would be destroyed. A party would not know what case must be
met.’
[15]
This,
however, is not such a case. In this case, neither party had annexed
the main contract to their papers. It was elicited by
Bryte because
the terms of the main contract were incorporated in the subcontract
by the terms of the subcontract, and it is Bryte
that seeks to rely
on the terms of the subcontract. It is well settled that a contract
must be interpreted in its entirety in order
to place any particular
term relied upon in its proper context. Thus, in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[6]
this Court held:
‘
Interpretation is
the process of attributing meaning to the words used in a document,
be it legislation, some other statutory instrument,
or contract,
having regard to the context provided by reading the particular
provision or provisions in the light of document as
a whole and the
circumstances attendant upon its coming into existence. Whatever the
nature of the document, consideration must
be given to the language
used in the light of the ordinary rules of grammar and syntax; the
contents in which the provision appears;
the apparent purpose to
which it is directed and the material known to those responsible for
its production. Where more than one
meaning is possible each
possibility must be weighed in the light of all these factors. The
process is objective, not subjective.
A sensible meaning is to be
preferred to one that leads to insensible or unbusinesslike results
or undermines the apparent purpose
for the document.’
[16]
In seeking to determine the purpose for which the retention money may
be retained in terms of the particular contract, it is
incumbent upon
the court to have regard to the terms of the contract in the context
in which they appear in the contract as a whole.
There can be no
purpose in seeking to isolate a portion of the contract and to seek
to attribute meaning to that portion as if
it exists independently of
the remainder of the contract. In the circumstances I find that the
court is entitled, and indeed obliged,
to have regard to the terms of
the main contract where they apply to the subcontract.
[17]
Retention money is defined in the main contract with reference to
clause 14.9 of the general conditions of the main contract.
Clause
14.9 provides for 50 per cent of the retention money, as calculated
by the engineer, to be released upon the issue of a
‘taking-
over’ certificate as defined in the general conditions of the
main contract. The remainder of the retention
money is to be released
upon the expiry of the defects notification period. The significance,
however, of clause 14.9 is that it
expressly records that in the
event that any work remains to be executed under clause 11 [defects
liability], the engineer shall
be entitled to withhold certification
of the estimated costs of this work until it has been executed.
[18]
Clause 11 of the general conditions of the main contract provides for
the defects liability. It records:
‘
In order that the
Works and Contractor’s Documents, and each Section, shall be in
a condition required by the Contract (fair
wear and tear excepted) by
the expiry date of the relevant Defects Notification Period or as
soon as practicable thereafter, the
contractor shall:
(a)
complete
any work which is outstanding on the date stated in a Taking-Over
Certificate,
[7]
within such
reasonable time as is instructed by the Engineer, and
(b)
execute all work required to remedy defects or damage, as may be
notified by (or on behalf of) the Employer on or before
the expiry
date of the Defects Notification Period for the Works or Section (as
the case may be).’
[19]
The
subcontract, read in the context of the general conditions of the
main contract, therefore leaves no doubt that retention money
may be
retained both for work which remains outstanding on the date stated
in the taking-over certificate and defects or damage
which exist in
the works after such date, irrespective of when they first
manifested. This interpretation accords with the provisions
of clause
11.2 of the subcontract which provides for the subcontractor, upon
receipt of the written notice from the contractor
during the defects
notification period, to make good any ‘defect or omission’
in the subcontract works and, in the
event of it failing to do so,
for the contractor to recover from the subcontractor the cost of
carrying out such work.
[8]
[20]
On a proper interpretation of the contract, it provides that upon the
issue of the completion certificate, Raubex was entitled
to require
Dolphin to complete any work which was outstanding on the date stated
in the certificate of completion within a reasonable
time and would
be entitled to withhold certification for the repayment of the
retention money for the estimated costs of such work
until it had
been executed. Retention money would therefore, but for the
guarantee, have been retained in respect of the work set
out in the
punch list which relates to incomplete work and defects discovered
before the issue of the certificate of practical
completion. Raubex
was entitled to include such items on the punch list and was entitled
to rely on such items in demanding payment
from Bryte in accordance
with the guarantee. I therefore consider that the court a quo erred
in its understanding of the purpose
of retention money and therefore
also in its assessment of the purpose of the guarantee.
[21]
There remains the argument on behalf of Bryte that Raubex
fraudulently misrepresented the amount of its estimation of the costs
to remedy the alleged breach by Dolphin. The court held that such
fraudulent representation was indeed made. It reasoned that the
estimate made was based on items in respect of which there can be no
dispute that they do not relate to the rectification
of a
breach relied upon after completion of the works. It has been shown
earlier that on a proper interpretation of the contract
retention
money may be retained in respect of incomplete or defective work,
irrespective whether it manifests before or after the
issue of the
certificate of completion. The force of the argument is therefore
seriously undermined by the issues dealt with earlier
herein.
[22]
In the answering papers for Bryte, there is merely a bald allegation
of fraud in respect of the estimation of the amount demanded
and no
facts are advanced for this assertion. In reply, Raubex provided a
detailed statement of its estimation of the costs involved
to
demonstrate how it had arrived at its bona fide estimation. In
argument before the court
a quo
, and before this Court, Bryte
placed reliance on this document to assert that a number of the
expenses set out therein do not relate
to the costs incurred by
Raubex to remedy any breach on the part of Dolphin. In particular,
reference is made to salaries paid
to employees of Raubex.
[23]
There is a fundamental difficulty with this approach. Although Bryte
has raised the issue of fraud, it has made no factual
averment that
could lead to a conclusion of fraud. No single expense included in
the estimation by Raubex annexed to its replying
affidavit has been
placed in dispute on the papers with the result that Raubex has not
been afforded an opportunity to explain
or justify the inclusion of
such amounts in its estimation.
[24]
As recorded
earlier, fraud will not be readily inferred; particularly where it is
sought to be established in motion proceedings.
A mere error,
misunderstanding or oversight, however
unreasonable, does not amount to fraud and it is insufficient
merely
to show that contentions are incorrect. A party has to go further and
show that the representor advanced the contentions
in bad faith,
knowing them to be incorrect.
[9]
There is no foundation laid in the papers for such a conclusion.
Clause 11.2 of the subcontract entitles Raubex, in the event that
Dolphin fails to make good any defects or omissions during the
defects notification period, to recover the costs of carrying out
such remedial works from Dolphin. Raubex is not required to engage an
alternative contractor and it may choose to carry out the
work
itself. Where Raubex proceeds to carry out the remedial work itself,
it would be required to deploy staff which would otherwise
have been
deployed on other projects to generate profit for Raubex. This, it
seems to me, would constitute legitimate expenses
incurred in
remedying the breach. There is accordingly no merit in the argument
that the inclusion of salaries in the estimation
of such costs gives
rise to the inevitable conclusion of fraud.
[25]
I am therefore of the view that Bryte has failed to discharge the
onus of establishing fraud on the part of Raubex.
[26]
In the result, the appeal must succeed. There is no reason for costs
not to follow the event.
[27]
It is therefore ordered:
1. The appeal is allowed,
with costs.
2. The order of the court
a quo is set aside and replaced with the following:
‘
The appeal is
dismissed, with costs.’
____________________
J Eksteen
Acting Judge of Appeal
APPEARANCES:
For
the Appellant: S Grobler
Instructed
by: Peyper Attorneys, Bloemfontein
For
the Respondent: H P Van Nieuwenhuizen
Instructed
by: Norton Rose Fulbright SA Inc, Johannesburg Webbers, Bloemfontein
[1]
Minister of Transport and Public Works, Western Cape & another v
Zanbuild Construction (Zanbuild)
2011 (5) SA 528
(SCA);
[2011] ZASCA
10
para 14; and Compass Insurance v Hospitality Hotel
Developments
2012 (2) SA 537
(SCA);
[2011] ZASCA 149
para 15.
[2]
Ibid.
[3]
Paragraph 4 of the Guarantee.
[4]
Loomcraft Fabrics CC v Nedbank Ltd & another
[1995] ZASCA 127
;
1996 (1) SA 812
(AD) at 815J. Zanbuild fn 1 above para 15; Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd & others
[2009]
ZASCA 71
;
2010 (2) SA 86
(SCA).
[5]
Gilbey Distillers & Vintners (Pty) Ltd v Morris NO 1990 (2) SA
217 (SE).
[6]
Natal Joint Municipal Pension Fund v Endumeni Municipality
[2012]
ZASCA 13
;
2012 (4) SA 593
(SCA) para 18.
[7]
A taking-over certificate in terms of the main contract is to be
issued when the works or a section is complete except for any
minor
outstanding work and defects which will not substantially affect the
use of the works or section for their intended purpose.
This accords
with clause 16 of the subcontract which provides for the issue of a
certificate of completion when the works are
substantially complete
as read with cause 11.1 thereof, which provides for the defects
notification period to run from the date
of practical completion,
being the date when the works or part thereof, have reached a stage
which allows their use for the intended
purpose without danger or
undue inconvenience.
[8]
The defects notification period is stated in the contract data to be
a period of 365 days which, in terms of clause 11.1 of the
subcontract, commences upon the date of practical completion –
in this case 29 October 2014.
[9]
Schoeman v Constantia Insurance Company Ltd
2003 (6) SA 313
(SCA);
[2003] ZASCA 48
para 37.