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[2014] ZAWCHC 24
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Scate Solar SA 163 (Pty) Ltd and Another v Terrafix Suedafrika (Pty) Ltd and Another (499/2014) [2014] ZAWCHC 24 (5 March 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
no: 499/2014
DATE:
05 MARCH 2013
In the matter
between:
SCATEC SOLAR SA
163 (PTY) LTD
..........................................
First
Applicant
ITOCHU
CORPORATION
......................................................
Second
Applicant
V
TERRAFIX
SUEDAFRIKA (PTY) LTD
................................
First
Respondent
HSBC BANK
PLC
...............................................................
Second
Respondent
Court: Justice J
Cloete
Heard: 13, 17,
18 and 19 February 2014
Delivered: 5
March 2014
JUDGMENT
CLOETE J:
Introduction
[1] On 15 January
2014 the applicants (‘Scatec’ and ‘Itochu’)
launched an urgent application against the
respondents (‘Terrafix’
and ‘HSBC’) for certain interdictory relief pending the
final determination of
arbitration proceedings to be held between
Scatec and Terrafix.
[2] On 17 January
2014 and by agreement, the relief sought was postponed to 13 February
2014 for hearing, when the matter came before
me. Included in the
order of 17 January 2014 was a timetable for the filing of answering
and replying affidavits. Also included
was certain agreed interim
interdictory relief against Terrafix, which essentially prevented it
from compelling payment from a
bank in Japan (‘Sumitomo’)
of a total amount of some R42 million under irrevocable standby
letters of credit (‘LCs’)
issued by Sumitomo to Terrafix.
[3] On 17 February
2014 (the second day of argument) the applicants were granted leave
to amend their notice of motion without opposition
from Terrafix and
were ordered to pay the wasted costs incurred thereby. HSBC has
fallen out of the picture. It was initially the
bank (in South
Africa) nominated by Terrafix into which the monies demanded under
the LCs were to be paid. Terrafix subsequently
nominated a different
bank in Germany for this purpose. The latter bank is not a party to
these proceedings.
[4] The first part
of the amended relief sought is a declaratory order that Terrafix’s
demands to Sumitomo under the LCs are
invalid, unenforceable and
unlawful by reason of fraud. The second part (which follows from the
first) is that Terrafix be ordered
to revoke the demands forthwith.
The relief sought is final in effect and is no longer linked to the
outcome of the arbitration
to be held between Scatec and Terrafix.
[5] The applicants
now accept, for purposes of this application, that the LCs are
‘classical’ and that accordingly the
only basis upon
which they can be declared unlawful and unenforceable is by reason of
fraud on the part of Terrafix. The applicants
no longer ask that this
issue be determined on the papers alone, but seek a referral to oral
evidence on specified issues as detailed
in the amended notice of
motion, alternatively, that certain of Terrafix’s deponents to
affidavits, as well as two other
individuals who are not deponents,
be ordered to appear to be cross-examined. The applicants further
seek what is essentially an
extension of the interim interdictory
relief granted on 17 January 2014 pending the final determination of
the main relief by way
of oral evidence, alternatively
cross-examination (the interim relief has been extended by agreement
pending judgment herein).
[6] Terrafix opposes
all of the relief sought and contends that it falls to be dismissed
on the papers alone.
Background
[7] Scatec is a
contractor building two solar power stations in the Northern Cape,
called Linde and Dreunberg respectively. Terrafix
is the wholly owned
subsidiary of a German company, Terrafix Anlagenbau GmbH (‘Terrafix
A’). Terrafix was a subcontractor
of Scatec, appointed in terms
of two written subcontracts in substantially similar terms. The
subcontracts were concluded on 20
June 2013. The Linde project
commenced before the Dreunberg project and is at a more advanced
stage.
[8] In terms of the
subcontracts Terrafix was to do work for which it was to be paid by
Scatec. Terrafix sought to secure payment
by way of payment
guarantees. On 31 July 2013 Scatec appointed Itochu, a corporation in
Japan, as its payment agent. Itochu in
turn arranged for LCs to be
issued in favour of Terrafix by Sumitomo, a commercial bank in Japan.
(During argument it was accepted
by Terrafix that, upon payment being
made by Sumitomo, the latter would have a right of recourse against
Itochu, which would in
turn have a right of recourse against Scatec.)
[9] The first LC
(for the Linde subcontract) was issued on 5 September 2013 and
expires on 31 May 2014. The initial amount for which
it was issued
was R119 238 213.41. This was subsequently reduced on 23 October 2013
to the amount of R83 466 749.39. The second
LC (for the Dreunberg
subcontract) was also issued on 5 September 2013 but expires on 31
August 2014. It was issued for an amount
of R251 558 105.36.
[10] Each LC
stipulates that the documents to be presented in order to trigger
payment are:
‘1) A COPY OF
DEBIT NOTE BY THE BENEFICIARY ATTENTION TO ITOCHU CORPORATION NUCLEAR
FUEL AND SOLAR BUSINESS DEPARTMENT SOLAR
BUSINESS SECTION NO.2,
DELIVERED AT 5 – 1, KITA AOYAMA 2 – CHOME MINATO-KU,
TOKYO 107-8077, JAPAN SHOWING THE DOCUMENTS
APPLICABLE TO THE
RELEVANT PAYMENT MILESTONE SET OUT IN APPENDIX 1 HERETO FOR PAYMENT
OF A SPECIFIED AMOUNT.
2) BENEFICIARY’S
SIGNED STATEMENT ATTENTION TO ITOCHU CORPORATION NUCLEAR FUEL AND
SOLAR BUSINESS DEPARTMENT SOLAR BUSINESS
SECTION NO.2, DELIVERED AT 5
– 1, KITA AOYAMA 2 – CHOME MINATO-KU, TOKYO 107-8077,
JAPAN, CERTIFYING THAT THE AMOUNT
OF ANY DRAWING(S) HEREUNDER
REPRESENT(S) INVOICE(S) AMOUNT WHICH REMAIN UNPAID AND THAT
PAYMENT(S) HAS NOT BEEN RECEIVED FROM ITOCHU
CORPORATION.
3) SIGNED
CONFIRMATION LETTER ISSUED BY ITOCHU CORPORATION, NUCLEAR FUEL AND
SOLAR BUSINESS DEPARTMENT SOLAR BUSINESS SECTION NO.2
STATING THAT
ITOCHU CORPORATION ADMIT TO HAVE NOT MADE PAYMENT TOWARD
BENEFICIARY’S SIGNED STATEMENT…’
[11] As will be seen
from the above each LC contains, as one of its conditions for
payment, the presentation of a debit note by
Terrafix to Itochu
‘showing the documents applicable to the relevant payment
milestone set out in appendix 1 hereto for payment
of a specified
amount’. In addition Terrafix must certify to Itochu that the
amount of any ‘drawing(s) hereunder represent(s)
[the]
invoice[ed] amount’. Each LC incorporates an appendix 1,
setting out a payment schedule linked to completion of work
stages,
or payment milestones.
[12] Various
material disputes arose between Scatec and Terrafix during the
execution of the subcontracts. These appear to have
had their origin
in Terrafix falling behind in its work schedule, but over time
extended to other disputes as well, one of which
was the nature of
the documentation to be submitted by Terrafix to Scatec for approval
on milestones allegedly achieved. Each party
blames the other. The
disputes culminated in Scatec issuing a notice of termination to
Terrafix in respect of each subcontract
on 25 November 2013. Terrafix
responded by informing Scatec on 10 December 2013 that it regarded
the notices of termination as
a repudiation of each subcontract; that
it accepted such repudiations; and that it accordingly thereby
terminated the subcontracts.
The two parties subsequently agreed to
refer all of these disputes to arbitration. The arbitration is
scheduled to take place in
May 2014.
[13] On 17 December
2013 Terrafix (through its attorneys) presented two demands for
payment to Itochu under the LCs.
[14] The demand for
payment under the Linde LC (no. 211LCJ-62055053) had annexed to it
the following:
14.1 A certificate
dated 10 December 2013 signed by Stephan Reisch (a director of
Terrafix and the chief executive officer of Terrafix
A in Germany
where he is based). This certified that an amount of R13 414 299
(exclusive of VAT) was due and payable to Terrafix
and that Itochu
had not made payment. Reisch certified that the aforesaid amount
‘represents the aggregate amount of debit
notes and/or rendered
invoices that have been issued and delivered’ to Itochu;
14.2 Three tax
invoices issued to Scatec, two dated 15 November 2013 and one dated
21 November 2013, each in the amount of R5 097
433.52 inclusive of
VAT, in respect of milestones allegedly achieved for anchor
installations on zones 1, 2 and 3; and
14.3 Three debit
notes issued to Itochu on the same dates and containing essentially
the same information as the three tax invoices,
but exclusive of VAT
and with a different specified payment period.
[15] The demand for
payment under the Dreunberg LC (no. 211LCJ-62055054) was to similar
effect and had similar annexures. The certificate
signed by Reisch
was dated 12 December 2013. The total amount demanded was R28 300
286.85 exclusive of VAT; the invoices and debit
notes were all dated
27 November 2013, and payment was demanded on the basis of milestones
allegedly achieved for the first three
deliveries of product on site.
[16] It will
immediately be apparent that the certification by Reisch in respect
of the Linde subcontract took place on the same
date that Terrafix
purportedly accepted Scatec’s repudiation and cancelled, i.e.
10 December 2013. Reisch certified on the
Dreunberg contract two days
later, on 12 December 2013. However, all of the invoices and debit
notes annexed in support of both
certifications pre-date Terrafix’s
cancellation. All of the Linde invoices and debit notes pre-date
Scatec’s purported
cancellation on 25 November 2013; and all of
the Dreunberg invoices and debit notes were generated after
cancellation by Scatec,
but before the purported cancellation by
Terrafix.
[17] On the same
date that Scatec cancelled, i.e. on 25 November 2013, it made demand
upon Lombard Insurance Company Limited (‘Lombard’)
for
payment of certain performance guarantees which Terrafix had issued
in favour of Scatec totalling approximately R37 million.
[18] Terrafix’s
letter of cancellation dated 10 December 2013 made no mention of its
intention to demand payment under the
LCs of amounts which it claimed
were owed to it contractually by Scatec. Rather, it demanded payment
of substantial damages from
Scatec together with the return of the
performance guarantees. Scatec refused to return the guarantees.
[19] On 17 December
2013 Terrafix failed in its attempt to interdict payment under the
performance guarantees by Lombard (per the
judgment of Veldhuizen J
under case no. 19686/2013).
[20] On 20 December
2013 Terrafix presented its two demands for payment under the LCs to
Sumitomo. On 30 December 2013 Sumitomo
advised Terrafix that its
demands did not ‘constitute a proper presentation of the
documents’ for payment. Further
communications followed,
culminating in Scatec and Itochu launching this application on 15
January 2014. The ground of urgency
alleged was that payment by
Sumitomo to Terrafix was imminent.
[21] Despite the
agreed interim interdictory relief contained in the order of 17
January 2014, Terrafix furthered its demands for
payment from
Sumitomo on 22 and 23 January 2014. In separate communications
through its attorneys dated 20 January 2014 and 31
January 2014 it
similarly furthered its demands, subject however to payment being
effected upon conclusion of these proceedings
in favour of Terrafix.
[22] It also emerged
that two days after Terrafix purportedly cancelled, i.e. on 12
December 2013, Terrafix A was placed under self-administered
insolvency (which, I was given to understand, is a process akin to
business rescue) in Germany. Reisch was the applicant in those
proceedings, but this was not disclosed by Terrafix (whose
representatives, including Reisch, clearly knew of it) to this court.
On 29 January 2014 Terrafix A was placed in preliminary insolvency.
Issues
[23] The primary
issue to be determined is whether, in certifying that payment was due
under the LCs, Terrafix (in the form of Reisch)
acted fraudulently.
[24] Inextricably
linked to this is whether, applying the Plascon-Evans rule
[1984] ZASCA 51
;
[1984 (3)
SA 623
(A) at 634E-635C], the version put up by Terrafix is such that
the application falls to be dismissed on the papers alone. A referral
to oral evidence (whether on specific issues or for
cross-examination) can only be ordered if, on the papers as they
stand, the
probabilities are evenly balanced or the issue remains
open.
[25] If the
application must fail on the papers, the extension of the interim
interdictory relief will of course fall away. If not,
it is necessary
to determine whether the applicants have made out a case for interim
interdictory relief, in order to grant the
extension sought pending
finalisation of the application.
Applicable legal
principles
[26] In Guardrisk
Insurance Company Ltd v Kentz (Pty) Ltd (94/2013)
[2013] ZASCA 182
(29 November 2013) the Supreme Court of Appeal explained the meaning
and application of the fraud exception as follows at para
[18]:
‘Insofar as
the fraud exception is concerned, the party alleging and relying on
such exception bears the onus of proving it.
That onus is an ordinary
civil one which has to be discharged on a balance of probabilities,
but will not likely be inferred. In
Loomcraft Fabrics CC v Nedbank
Ltd and another [1996 (1) SA 812 (A) at 817E-F] it was pointed out
that in order to succeed in respect
of the fraud exception, a party
had to prove that the beneficiary presented the bills (documents) to
the bank knowing that they
contained material misrepresentations of
fact upon which the bank would rely and which they knew were untrue.
Mere error, misunderstanding
or oversight, however unreasonable,
would not amount to fraud. Nor was it enough to show that the
beneficiary’s contentions
were incorrect. A party had to go
further and show that the beneficiary knew it to be incorrect and
that the contention was advanced
in bad faith.’
[27] What must
therefore be shown in order to infer fraudulent intent in this
context is the following:
27.1 presentation by
the beneficiary under an LC (this is not disputed);
27.2 disclosing a
misrepresentation of a material fact in the presentation; and
27.3 that it was
known by the presenting beneficiary to be untrue.
[28] In Rex v Myers
1947 SA 375
(AD) at 382-383 the court, dealing with the issue of a
fraudulent representation, held that:
‘I think it
can be summed up, for the purposes of the present case, by saying
that if the maker of a representation which
is false has no honest
belief in the truth of his statement when he makes it, then he is
fraudulent…
The requirement that
the belief should be honest is referred to in Halsbury (2nd ed., Vol.
23, sec.59) where it is said that a belief
is not honest which,
“though in
fact entertained by the representor may have been itself the outcome
of fraudulent diligence in ignorance - that
is, of a wilful
abstention from all sources of information which might lead to
suspicion, and a sedulous avoidance of all possible
avenues to the
truth, for the express purpose of not having any doubt thrown on what
he desires and is determined to, and afterwards
does (in a sense)
believe.”
… absence of
reasonable grounds for belief in the truth of what is stated may
provide cogent evidence that there was in fact
no such belief.’
[29] As regards the
test for a referral to oral evidence, this is clearly set out in
Lombaard v Droprop CC and others
2010 (5) SA 1
(SCA) at paras [29] –
[33], more particularly as follows:
‘[29] It has
long been recognised that a discretion resides in a High Court
derived from the rules of court, to refer a disputed
issue of fact
which cannot be decided on affidavit for the hearing of oral
evidence… The overriding consideration in the
exercise of the
discretion is ensuring a just and expeditious decision. In short, in
the case of a dispute of fact the court must
be persuaded that the
hearing of evidence will be fair to the parties, and will conduce to
an effective and speedy resolution of
the dispute and the overall
application…
[33] If, on the
affidavits, the probabilities lie clearly against a party who
requires evidence in order to succeed on motion, the
court is
unlikely to regard evidence as profitable or necessary to determine
the issue. However, if the balance of the probabilities
is even, or,
at least, the court considers that the issue can fairly be said to
remain open, then a just outcome may well require
the hearing of
evidence. With regard to the last-mentioned aspect, it is obvious
that the court must take into account all factors
relevant to the
manner in which the parties presented their versions in the
affidavits…’
[30] As to the
requirements for interim interdictory relief pending a referral to
oral evidence, the test is as set out in Spur
Steak Ranches Ltd and
Others v Saddles Steak Ranch, Claremont and Another
1996 (3) SA 706
(CPD) and Camps Bay Residents and Ratepayers Association and Others v
Augoustides and Others
2009 (6) SA 190
(WCC).
[31] In Spur Steak
Ranches at 714F-H the court held that:
‘It is also
necessary to repeat that although normally stated as a single
requirement, the requirement for a right prima facie
established,
though open to some doubt, involves two stages. Once the prima facie
right has been assessed, that part of the requirement
which refers to
the doubt involves a further enquiry in terms whereof the Court looks
at the facts set up by the respondent in
contradiction of the
applicant’s case in order to see whether serious doubt is
thrown on the applicant’s case and if
there is a mere
contradiction or unconvincing explanation, then the right will be
protected. Where, however, there is serious doubt
then the applicant
cannot succeed. See Webster v Mitchell
1948 (1) SA 1186
(W) at 1189;
Gool v Minister of Justice and another
1955 (2) SA 682
(C) at 688.’
[32] In Camps Bay
Residents at para [7], the court, after setting out the trite
requirements for interim interdictory relief, confirmed
that:
‘In
determining whether a prima facie right has been established, the
right need not be shown by a balance of probabilities.
If it is prima
facie established, though open to some doubt, that is sufficient.’
Application of legal
principles to affidavit evidence
[33] At the risk of
repetition, it is not necessary for me to determine the issue of
fraud at this stage. What I am required to
evaluate is whether,
applying the Plascon-Evans rule, the probabilities are evenly
balanced, or the issue of fraud can fairly be
said to remain open,
because then a just outcome will, in my view, require a referral.
[34] It is common
cause that Reisch is the person who acted on behalf of Terrafix in
certifying and making presentation of the demands
under the LCs. He
certified that the amounts invoiced under the subcontracts were due
and payable. It is thus his state of mind
when he performed these
acts that is crucial to the determination of fraud.
[35] Terrafix’s
main deponent was Martin Ramsauer, a project director on the
subcontracts and the chief operating officer
of Terrafix A. He was
actively involved in the execution of the subcontracts as well as
many of the disputes which arose between
Scatec and Terrafix relating
thereto. He filed a lengthy affidavit dealing with a number of
disputed issues. However, what he singularly
failed to deal with is
whether, and in what manner, the attitude of Terrafix’s
representatives engaged in the dispute that
it was entitled to
payment, and the basis thereof, was conveyed to Reisch, so as to
enable him to certify in good faith that the
amounts claimed under
the LCs were due and payable.
[36] A number of
emails were annexed to Ramsauer’s affidavit in support of his
version. Of these, only three were copied in
to Reisch; and they
relate only to Terrafix’s proposed recovery plan on the Linde
subcontract submitted to Scatec on 7 October
2013, and the acceptance
by Terrafix on 21 October 2013 of a reduced payment period on the
Linde subcontract invoices. They are
accordingly of no assistance in
pointing to Reisch’s state of mind when he certified.
[37] Reisch deposed
to a “confirmatory” affidavit. The contents are also of
little, if any, assistance. Paragraphs 3
and 4 of his affidavit
record that:
‘I depose to
this affidavit firstly in order to confirm those allegations made by
Martin Ramsauer in his affidavit of which
I have knowledge…
Secondly I depose to this affidavit in order to answer the
allegations made by Scatec that Terrafix is
in dire financial
circumstances and insolvent.’
[38] Reisch
pertinently failed to address which of the many allegations in
Ramsauer’s affidavit fell within his (i.e. Reisch’s)
knowledge. The only vague indication of Reisch’s knowledge is
to be found at paragraph 10 of his affidavit, which merely
reads
that:
‘Terrafix
further enjoys damages claims in respect of the two sub-contracts
against Scatec for a total of R169 million.’
[39] None of the
other confirmatory affidavits filed on behalf of Terrafix take this
issue any further. None of the deponents state
either in terms, or
indirectly, that any of them conveyed anything to Reisch on this
issue, or indeed that such information was
conveyed directly or
indirectly to Reisch by anyone else. In addition, two of the
protagonists in the subcontracts dispute, namely
Henk Lange of Lerumo
(one of Terrafix’s subcontractors) and Daniel Brandhuber of
Terrafix, did not even depose to affidavits.
[40] Terrafix itself
contended (during argument) that Reisch did not communicate with any
representative on the ground in South
Africa. This contention appears
to have been made within the context of the submission that Reisch
had no reason to “go behind
the invoices”; in other
words, that Reisch needed to have nothing more than sight of the
invoices in order to certify that
they were due and payable.
Accordingly, so the argument went, Reisch was not obliged to
determine for himself whether the amounts
were due and payable. On
Terrafix’s argument, therefore, a certification is simply a
document serving no attesting function.
[41] However, a
certification serves as a representation to the bank that the amounts
are due and payable. That being the case,
it was surely incumbent
upon Reisch to independently establish that the amounts were owing in
order to enable him to certify that
fact.
[42] Of course, the
absence of cogent evidence by Terrafix as to Reisch’s state of
mind when he certified does not justify
a finding on the
probabilities in Scatec’s favour. The onus to prove fraud
nonetheless still rests squarely upon Scatec.
[43] By the same
token, however, the “version” put up by Terrafix is
certainly not such that the application falls to
be dismissed on the
papers alone. As matters stand, the probabilities are evenly
balanced. Put differently, the issue can fairly
be said to remain
open (Lombaard at para [33]).
[44] It should also
be pointed out that, as submitted by the applicants, the validity of
Scatec’s termination of the subcontracts
does not have to be
determined in its favour for purposes of the fraud issue. On the
contrary, the court hearing oral evidence
could assume, for purposes
thereof, that such termination was invalid. The issue of fraud
relates to whether payment under the
invoices was knowingly not due.
It relates to what Reisch knew, whether he made any enquiries or
refrained from doing so, and if
so, whether he was dishonest in
making the representation that he did.
[45] It was argued
by Terrafix that all that Reisch had to do was to be aware that there
was a cancellation; that it was unlawful;
procure the invoices; and
check that the time period for payment had elapsed. He was then
entitled to assume that the amounts were
due and payable. He was not
obliged to look at documents or to have regard to any other
information. Of course, whether Reisch
was aware of any of these
matters is an open question.
[46] In addition, a
mere perfunctory signing of a letter purporting to be a certification
is not the test, and a studious avoidance
to determine whether there
are objective facts for a belief that the amounts are due and payable
falls squarely within the parameters
of the test for fraud set out in
Myers.
[47] I agree with
Scatec’s submission that the argument presented by Terrafix is
not unlike the situation of a seller who
claims under a letter of
credit but who is aware at the same time that he may not have
delivered the goods. It cannot be accepted
that in those
circumstances all he is obliged to do is to look at the invoice and
send it; that he does not have to check that
the goods have been
delivered; and hence that he does not have to check that the monies
are due and payable. A seller who knowingly
fails to deliver the
goods is fraudulent if he claims under the letter of credit
concerned.
[48] Also directly
relevant to Reisch’s state of mind is the basis upon which he
certified that the amounts as claimed were
due and payable, given
that all of the invoices pre-dated Terrafix’s purported
termination; and were presented pursuant to
Terrafix’s
acceptance of Scatec’s repudiation and its consequent
cancellation. The relevant provisions of the subcontracts
come into
play here and, for a just and expeditious decision, Reisch will have
to explain what he considered and took into account
when he
certified.
[49] The aspects to
which I have referred are not in any way intended to be exhaustive,
but are merely meant to illustrate the type
of questions which
Reisch, against the backdrop of the objective facts, will have to
answer before a court is properly able to
make a determination on the
fraud issue. It is for these reasons that Reisch should appear and be
cross-examined to explain himself.
[50] That having
been said, I am not persuaded that it is appropriate to refer the
matter for the hearing of oral evidence on all
of the issues detailed
in the amended notice of motion, given that they may not be
specifically relevant to the fraud issue. At
the same time I am
mindful of the possibility that one or more could become relevant
during Reisch’s testimony, and it
would not be just to pre-empt
this eventuality by closing the door on the parties at this stage. I
thus intend to cater for this
in the order that follows.
The extension of
the interim interdictory relief
[51] I am persuaded
that, in accordance with the test set out in Spur Steak Ranches, the
applicants have established a prima facie
right, although open to
some doubt, to interdict Terrafix from compelling payment under the
LCs pending determination of the fraud
issue by way of the referral.
[52] As to the first
stage of the test, the applicants have a right that a fraudulent
demand not be made by Terrafix under the LCs.
If Sumitomo is
compelled to pay then Itochu, and in turn Scatec, will effectively be
deprived of the fraud defence. Put differently,
the applicants have
the right not to have to incur substantial liability in consequence
of an improper demand. As regards the second
stage, on the papers as
they stand, there are insufficient facts advanced by Terrafix to cast
serious doubt on the applicants’
case for fraud. At best for
Terrafix there is a ‘mere contradiction’ of the
applicants’ allegations.
[53] I am also
persuaded that the applicants have established a well-grounded
apprehension of irreparable harm. Terrafix attempted
to explain away
its material non-disclosure of the court ordered self-administered
insolvency (and subsequent preliminary insolvency)
of its sole
shareholder on the basis that this was not a matter that required
disclosure in German law. This is a wholly unsatisfactory
explanation. Reisch’s affidavit was deposed to on 27 January
2014, about 6 weeks after he made application on behalf of Terrafix
A
to the German court; and 2 days before Terrafix A was placed in
preliminary insolvency. He obviously knew that the issue of
Terrafix’s insolvency had to be addressed because he attempted
to paint a rosy picture of its financial health in these proceedings.
It cannot seriously be suggested by Terrafix that the fact of the
court ordered insolvency should not have been brought to the
attention of this court. To my mind, this material non-disclosure is,
of itself, sufficient to ground the reasonable apprehension
of
irreparable harm on the part of the applicants. In addition, on
Terrafix’s own version, it has nominated a bank in Germany
(over which this court has no jurisdiction) to accept payment of the
monies demanded under the LCs.
[54] With regard to
the balance of convenience, all that Terrafix has suggested would
arise from its inability to obtain payment
under the LCs is its being
precluded from ‘applying those funds in the ordinary course’.
It has not paid its subcontractors
on the two projects. It has no
intention of doing so. Apart from the fact that Scatec has paid them,
apparently to keep the projects
going, Terrafix maintains that it
itself has no obligation to pay them. It has referred to no other
liabilities which fall to be
met by payment from the funds to be
derived from the LCs. Any possible balance of convenience in favour
of Terrafix is outweighed
by the potential irrecoverability of those
funds by Scatec in the event of a successful arbitration.
[55] Finally,
Terrafix has not challenged the absence of an adequate alternative
remedy for the applicants.
Costs
[56] Having regard
to all of the aforegoing, and in the exercise of my discretion, it is
my view that it would be appropriate to
order that costs stand over
for determination at the hearing.
Conclusion
[58] In the result
the following orders are made:
1. The relief sought
at prayers 2 and 3 of the applicants’ amended notice of motion
is postponed for determination at the
hearing referred to in
paragraph 2 below.
2. Subject to
paragraph 3 below, Stephan Reisch is hereby ordered to appear
personally on the postponed date to be cross-examined
on the issue of
whether the first respondent’s written demands for payment made
on Sumitomo Mitsui Banking Corporation of
Japan (‘Sumitomo’)
pursuant to Irrevocable Standby Letters of Credit numbered
211LCJ-62055053 and 211LCJ-62055054 issued
by Sumitomo on 5 September
2013 (“the demands”) are invalid, unenforceable and
unlawful by reason of fraud (“the
issue”).
3. The parties are
granted leave to apply to the court hearing Reisch’s evidence
to adduce such other evidence which, in the
opinion of the presiding
judge, is directly relevant to the determination of the issue set
forth in paragraph 2 above.
4. The Registrar is
directed to enrol the matter for hearing as set forth hereinabove on
a preferential date during court term prior
to 11 April 2014 pursuant
to the permission granted by the Judge President, or such later date
as the parties may agree in writing
in consultation with the
Registrar.
5. Pending the final
determination of the relief referred to in paragraph 1 above –
5.1 the first
respondent is ordered to suspend, or cause to be suspended, the
demands, and to do all things necessary to give effect
to such
suspension, including by notifying Sumitomo forthwith thereof and of
the terms of this order;
5.2 the first
respondent is interdicted and restrained from implementing or doing
anything to further the demands.
6. The costs of this
application shall stand over for determination at the hearing on the
postponed date.
J I CLOETE