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[2014] ZAWCHC 63
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Scatec Solar SA 163 (Pty) Ltd and Another v Terrafix Suedafrika (Pty) Ltd and Another (499/2014) [2014] ZAWCHC 63 (25 April 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
Case
no: 499/2014
DATE:
25 APRIL 2014
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: 24 –
26 March 2014 and 14 April 2014
Delivered: 25
April 2014
JUDGMENT
AFTER ORAL EVIDENCE
CLOETE J:
Introduction
[1] This is a
further stage in proceedings launched by the applicants (‘Scatec’
and ‘Itochu’) on 15 January
2014 for certain interim
interdictory relief against the respondents (‘Terrafix’
and ‘HSBC’). As the matter
evolved, the relief sought
against HSBC fell away, and that sought against Terrafix has become
final in nature.
[2] The history is
set out in a judgment which I delivered on 5 March 2014 and will thus
not be repeated herein, save to the extent
that it is unavoidable. In
short, Scatec and Itochu seek a declaratory order that Terrafix’s
written demands to a bank in
Japan (‘Sumitomo’) for
payment of some R42 million under certain irrevocable standby letters
of credit (‘LCs’)
are invalid, unenforceable and unlawful
by reason of fraud; as well as an order that Terrafix shall forthwith
revoke the demands
and instruct Sumitomo accordingly. An interim
interdict granted by agreement on 17 January 2014 preventing Terrafix
from compelling
payment has been further extended pending judgment
herein.
[3] Demands
presented to Sumitomo that the amounts claimed under the LCs were due
and payable to Terrafix were signed by Stephan
Reisch (‘Reisch’),
a director of Terrafix and the chief executive officer of its holding
company, Terrafix A in Germany
(where he is based). At the previous
hearing the primary issue was whether, in certifying that payment was
due under the LCs, Terrafix
(in the form of Reisch) acted
fraudulently, and the applicants sought a referral to oral evidence
for purposes of determination
thereof. For the reasons set out in my
previous judgment I ordered Reisch to submit himself to
cross-examination on this issue,
which he duly did. This is now the
only remaining aspect requiring determination (save for costs).
[4] I also granted
leave to the parties to apply to adduce such other evidence which, in
the opinion of the court hearing Reisch’s
evidence, was
directly relevant to the determination of the fraud issue, but none
of the parties availed themselves hereof.
Applicable legal
principles
[5] For ease of
reference I will briefly refer to the authorities and principles set
out in paras [26] to [28] of my previous judgment
and I will also
amplify certain aspects thereof.
[6] In Loomcraft
Fabrics CC v Nedbank Ltd and Another
[1995] ZASCA 127
;
1996 (1) SA 812
(A) at 817E-H it
was held that:
‘ Nonetheless,
it is now well established that a Court will grant an interdict
restraining a bank from paying the beneficiary
under a credit in the
event of it being established that the beneficiary was a party to
fraud in relation to the documents presented
to the bank for payment.
For, as was observed by Lord Diplock in the United City Merchants
case supra at 725j,
“ ‘…fraud
unravels all’. The courts will not allow their process to be
used by a dishonest person to carry
out a fraud.”
But the fraud on the
part of the beneficiary will have to be clearly established. Tukan
Timber Ltd v Barclays Bank plc [1987] 1
Lloyd’s Rep 171 (QB) at
175. The onus, of course, remains the ordinary civil one which has to
be discharged on a balance
of probabilities but, as in any other case
where fraud is alleged, it will not lightly be inferred. See Gates v
Gates
1939 AD 150
at 155; Gilbey Distillers & Vintners (Pty) Ltd
and Others v Morris NO and Another
1990 (2) SA 217
(SE) at 226A.’
[7] In Guardrisk
Insurance Company Ltd v Kentz (Pty) Ltd (94/2013)
[2013] ZASCA 182
(29 November 2013) at para [18] the Supreme Court of Appeal, citing
Loomcraft with approval, emphasised that:
‘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.’
[8] Casey and
Another v FirstRand Bank Ltd
2014 (2) SA 374
(SCA) was handed down on
26 September 2013 and thus obviously did not refer to Guardrisk, but
it similarly approved and applied
Loomcraft. At para [12] the court
reiterated the principle that ‘a letter of credit is wholly
independent of the underlying
contract between the customer of the
bank and the beneficiary. It establishes a contractual obligation on
the part of the issuing
bank to pay the beneficiary in accordance
with its terms’. It held that whether or not the claim of
Firstrand Bank (which
had demanded and received payment under the LC
concerned) had prescribed was irrelevant. Casey serves to demonstrate
just how strictly
our law requires adherence to payment having to be
made under an LC in the absence of fraud being established.
[9] C R Snyman:
Criminal Law (5th ed) p 531 defines fraud as meaning ‘the
unlawful and intentional making of a misrepresentation
which causes
actual prejudice or which is potentially prejudicial to another’
(see also the authorities cited therein at
fn 1).
[10] It is not in
dispute that if an intentional misrepresentation was made by Reisch
when he certified, it would result, ultimately,
in prejudice to
Scatec and Itochu. What is in dispute, and is now the crux of the
matter, is whether: (a) Reisch made misrepresentations
in the
presentation of the demands by wrongly certifying that certain
milestones which would trigger payment by Sumitomo had been
met; and
(b) if so, whether such misrepresentations were intentional. Both
elements must be found to be present before it can be
said that
Scatec and Itochu have discharged the onus that rests upon them to
establish fraud.
[11] During argument
at the previous hearing counsel for Scatec submitted, on the basis of
R v Myers
1948 (1) SA 375
(A), that a misrepresentation will also be
intentional if it is made as a result of ‘fraudulent diligence
in ignorance’.
In argument at the present hearing counsel for
Terrafix contended that ‘the applicants’ use of the
dictum [in Myers]
to establish fraud in the context of a presentation
made pursuant to an LC is (at best) novel and without precedent’.
[12] In Casey the
Supreme Court of Appeal reiterated the contractual nature of an LC,
and referred in terms to the establishment
of a ‘contractual
obligation on the part of the issuing bank to pay the beneficiary in
accordance with its terms’.
Christie and Bradfield in
Christie’s The Law of Contract in South Africa (6th ed) at p
305 quote Myers as authority for
the requirements of fraudulent
misrepresentation in a contractual context:
‘The telling
of a deliberate lie is an obvious example of fraud, but other
examples require to be closely examined in order
to decide whether
the representation must be treated as fraudulent, with all the
results that follow, especially the awarding of
damages against the
maker. The requisites of fraud were authoritatively stated by the
Appellate Division in R v Myers
1948 1 SA 375
(A)…’
[13] In Hamman v
Moolman
1968 (4) SA 340
(A) the court, referring inter alia to Myers,
stated the following at 347A-B:
‘The fact that
a belief is held to be not well-founded may, of course, point to the
absence of an honest belief, but this
fact must be weighed with all
the relevant evidence in order to determine the existence or absence
of an honest belief.’
[14] There does not
appear to be anything in Loomcraft, Guardrisk or Casey to militate
against Scatec’s partial reliance on
Reisch’s ‘fraudulent
diligence in ignorance’, or that the test for fraud in matters
concerning LCs differs in
some way from the test for fraud in all
other cases. It would thus be prudent, when evaluating the evidence,
to also consider whether
Reisch can be said to be guilty of
‘fraudulent diligence in ignorance’.
[15] In Lekup Prop
Co No 4 (Pty) Ltd v Wright
2012 (5) SA 246
(SCA) at para [32] the
Supreme Court of Appeal set out the approach to be taken when
evaluating evidence in motion proceedings,
coupled with a referral to
evidence on limited issues, as follows:
‘A referral to
trial is different to a referral to evidence on limited issues. In
the latter case, the affidavits stand as
evidence save to the extent
that they deal with dispute(s) of fact; and once the dispute(s) have
been resolved by oral evidence,
the matter is decided on the basis of
that finding together with the affidavit evidence that is not in
dispute.’
The terms of the
LCs, the demands made thereunder and the relevance of Reisch’s
state of mind
[16] I will briefly
repeat the terms of the LCs. 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.
[17] 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 … 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…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…STATING THAT ITOCHU
CORPORATION ADMIT TO HAVE NOT MADE PAYMENT TOWARD BENEFICIARY’S
SIGNED STATEMENT…’
[18] Each LC thus
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,
on fulfilment of
which the relevant invoice may be generated to obtain payment.
[19] On 17 December
2013 Terrafix (through its attorneys) presented two demands for
payment to Itochu under the LCs.
[20] The demand for
payment under the Linde LC (no. 211LCJ-62055053) had annexed to it
the following:
20.1 A certificate
dated 10 December 2013 signed by Reisch, certifying 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;
20.2 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
20.3 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.
[21] 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.
[22] Itochu did not
pay and on 20 December 2013 Terrafix presented its two demands for
payment under the LCs to Sumitomo.
[23] At the risk of
repetition, the question is whether Reisch knew when he presented the
demands for payment to Sumitomo that Terrafix
was in fact not
entitled to payment in terms of the relevant invoices, but he
nonetheless intentionally went ahead and deliberately
represented to
Sumitomo that the amounts were due. Linked to this is whether Reisch
took positive steps to inform himself that
the amounts were in fact
not due, or whether he deliberately refrained from acquainting
himself with the true position so as to
relieve himself of knowledge
of the true facts.
[24] After the
conclusion of Reisch’s oral evidence, it is Scatec’s case
that: (a) in respect of the Linde LC, Reisch
had actual knowledge
that the amounts were not due and in addition wilfully abstained from
establishing the true facts; and (b)
in respect of the Dreunberg LC,
Reisch is guilty of such wilful abstention only. I will deal first
with the evidence in respect
of the Linde LC and thereafter with the
evidence in respect of the Dreunberg LC.
The evidence of
Reisch and the affidavit evidence
[25] Reisch was
cross-examined for almost three days, at times with the assistance of
a sworn interpreter. He has an excellent command
of the English
language but it was clear to me that he did not always follow the
context and nuances of the questions that were
put to him. Upon
receiving clarification he was generally able to convey his answers
in a cogent manner, but due allowance needs
to be made for this
difficulty when evaluating his testimony.
[26] The overall
impression that I gained was that Reisch, although not averse to
expediency, was essentially an honest witness.
He is a typical
hard-nosed, smooth talking businessman who leaves matters of detail
to those he believes he can rely upon, such
as his employees and
legal advisors. The picture that emerged is that Reisch can certainly
be accused of a lack of attention to
detail as well as a cavalier
attitude towards this litigation, as is evidenced by his failure to
familiarise himself with the affidavits
of the deponents in the
application as well as failing to pay proper attention to the
contents of his own affidavits before deposing
to them, both of which
were canvassed exhaustively with him.
[27] There can be
little doubt that, stricto sensu, Reisch made a misrepresentation to
Sumitomo when he certified that payment milestones
had been achieved
in respect of anchor installations on zones 1, 2 and 3 on the Linde
subcontract. On his own version, the work
stages which triggered
payment for these milestones had not been completed.
[28] However it was
Reisch’s testimony that Terrafix and Scatec had agreed that,
because Terrafix could not complete the anchor
installations on these
zones due to open cable trenches, provided that Terrafix installed
anchors on zone 4 as well to a quantity
of anchors equivalent to what
would otherwise have been installed to complete zones 1 to 3,
Terrafix would become entitled to payment
from Scatec as if the
relevant milestones on zones 1 to 3 had been achieved. It was also
Reisch’s testimony that he understood
that this agreement had
been reached during the first two weeks of November 2013. The terms
of that agreement had been conveyed
to him by Martin Ramsauer, a
project director on the subcontracts and with whom he was in daily
contact, as well as Matthias Kirchner,
a site manager in charge of
the foundation works on both the Linde and Dreunberg sites. Reisch’s
evidence was further that
he believed (although he was not certain)
that this agreement had been reached with Roberto Berardo and Kari de
Fremme of Scatec,
to whom I will refer below.
[29] Despite the
scepticism with which this testimony was received by Scatec’s
counsel, given the absence of any specific
prior allegations to this
effect, I cannot ignore the following which serve to corroborate
Reisch’s evidence on this aspect.
[30] The first piece
of evidence is that Ramsauer alleged in his answering affidavit that
‘delays in installing the anchor
stations were entirely due to
[another subcontractor] Raubex’s failure to close the trenches.
Scatec accepted that this was
the position’. In reply to this
allegation, and after dealing with Terrafix’s alleged failure
to request extensions
under the Linde subcontract, Scatec’s
Irma Pienaar stated the following:
‘35.3
Secondly, the complaints concerning alleged delays by Raubex and
delays on site are, once again, vague and generalised
without any
particularity as to which portion or zone(s) of the site was
affected, when, for how long and to what extent. The Applicants
therefore simply cannot deal with this issue meaningfully.
35.4 Thirdly, and in
any event, Raubex’s delays in digging and/or closing trenches
were raised and discussed at site meetings
attended inter alia by
representatives of Terrafix and Scatec. Because Terrafix was able to
progress with work in other sectors
of the site, it in fact never
submitted claims for extensions of time under the sub-contract and,
in fact, no delays resulted from
this.
35.5 The allegations
contained in this paragraph are accordingly denied. Without
derogating from the generality of this denial,
I categorically deny
the unsubstantiated allegation that Scatec accepted that delays in
installing the anchor stations were entirely,
or at all, due to
Raubex’s failure to close trenches.’
[emphasis supplied]
[31] From the
aforegoing it is clear that: (a) the issue of delays in closing cable
trenches (irrespective of who was to blame)
was raised and discussed
at more than one site meeting, and thus, at the very least, there
must have been a problem sufficient
to merit discussion on more than
one occasion; and (b) Terrafix in fact progressed with work in other
sectors of the Linde site
as a result. This lends credence to
Reisch’s version that there was a deviation from the schedule
for completion of the work
stages on the Linde site, although of
course it does not translate into a clear agreement on a deviation in
payment terms.
[32] The second
piece of evidence is contained in an email dated 14 November 2013
annexed to Ramsauer’s answering affidavit.
It was addressed by
Daniel Brandhuber of Terrafix to Henk Lange of Lerumo (a
subcontractor of Terrafix) as well as various other
individuals
involved in the Linde project, and was in response to the uploading
of documents required by Scatec to project place
in order to approve
payment. It reads as follows:
‘Henk this is
not acceptable for us. Is there any way to get the final approval
from Scatec earlier? This is so bad for our
payment flow.
Is it possible that
you will have another discussion with Scatec tomorrow? We already
finished nearly 4 zones and Scatec has not
provide [sic] any
payment.’
[33] If Reisch’s
version is to be rejected out of hand, the question that arises is
why Terrafix would have almost completed
zone 4 by mid-November 2013
instead of first trying to finalise completion of zones 1 to 3 so as
to obtain payment in accordance
with the stipulated payment
milestones. This ties in with what Pienaar had stated in her
affidavit, namely that Terrafix progressed
with work on other sectors
of the site. It also ties in with the date of submission of the first
two invoices, namely 15 November
2013, one day after Brandhuber’s
email to the effect that zone 4 had almost been completed.
[34] The third piece
of evidence is contained in two separate emails, also dated 14
November 2013, annexed to Ramsauer’s affidavit.
One was
circulated by Fred Maritz, Scatec’s construction site manager
on the Linde subcontract. Maritz thanked the various
teams (or
subcontractors) on the Linde site for their efforts and hard work,
stating that at times it had been ‘very difficult
and with
commitment from all parties involved we achieved success’. The
other was an email circulated by Roberto Berardo,
Scatec’s
project manager on the Linde site, in which he referred to the email
from Maritz and congratulated all concerned
(including Terrafix,
given that it was copied to Ramsauer) ‘…for the
achievement…let’s beat the installation
now’. This
implies that despite the installation not having been completed
(although I accept that this is not the only possible
interpretation), Scatec appeared to be satisfied with progress made
up to that point.
[35] The fourth, and
most significant piece of evidence, is contained in an affidavit of
Kari de Fremme (‘Fremme’) filed
in proceedings during
December 2013 before Veldhuizen J, when Terrafix unsuccessfully
sought to interdict payment to Scatec under
certain performance
guarantees, and to which I referred at paras [17] and [19] of my
previous judgment (‘the Lombard application’).
Fremme is
the vice president of project execution for Scatec’s holding
company, Scatec Solar AS in Norway and the person
who was appointed
by Scatec as its official representative on the subcontracts. In
dealing with what she referred to as Terrafix’s
‘delays
and incompetence’ on the Linde site and the assistance
allegedly provided to it by Scatec, she stated the following:
‘We have also
agreed to pay for the anchor installations in the Linde project,
despite the fact that the contracted payment
milestones had [sic] yet
to be met as the anchors for the drive stations are still not
installed.’
[36] Scatec did not
ask for leave to call Fremme to explain this statement, although it
was clearly relevant to the determination
of the fraud issue. Rather,
Scatec sought to explain it away by relying upon what Pienaar had
stated in her replying affidavit:
‘48.1 The
quotation from Scatec’s supplementary answering papers in the
prior application, which Ramsauer incorrectly
quotes – he ought
to have quoted “as the anchors for the drive station are still
not installed” – must
be seen in context. Scatec was
demonstrating the extent to which it had been accommodating and
granting indulgences to Terrafix
– which are in any event not
binding in terms of clause 1.2.5 of the sub-contract – in
relation to the project by reason
of Terrafix’s own cash flow
dilemma. Such an indulgence was obviously dependent on actual
completion by Terrafix of the
milestones. In the event this did not
occur as the sub-contracts were cancelled and the milestones were not
(and could not be)
completed or achieved. Such context also requires
consideration of what Fremme stated elsewhere in her affidavit, as
referred to
above, namely that it was denied that payments were due
to Terrafix at the time of the termination.’
[37] Scatec’s
attempts to explain away Fremme’s statement, which is
consistent with Reisch’s testimony, are not
persuasive.
Firstly, there is no clear indication that prior to Reisch’s
certification under the Linde LC, Scatec had taken
issue with the
invoices submitted to it for payment in respect of milestones
allegedly achieved for anchor installations on zones
1, 2 and 3,
which invoices were dated 15 and 21 November 2013 respectively. The
highwater mark of any such dissatisfaction (save
for a dispute about
which documents were required to be uploaded to project place) is
contained in Scatec’s notice of termination
of the Linde
subcontract dated 25 November 2013, in which it informed Terrafix
that it would withhold further payments until its
‘costs and
damages’ had been established. Secondly, in the Lombard
application before Veldhuizen J, Scatec denied that
any amount was
owed to Terrafix ‘as a result of its breach of the
subcontract’, while at the same time alleging (per
Fremme) the
existence of the arrangement relied upon by Reisch in his subsequent
testimony. Thirdly, Fremme herself made it clear
that payment in
respect of invoices for anchor installations on zones 1, 2 and 3 was
not dependent upon actual completion of the
relevant milestones –
but that in fact the opposite was the case. Fremme’s affidavit
in the Lombard application was
deposed to on 3 December 2013, a week
before Reisch certified on the Linde LC.
[38] It was also
Reisch’s evidence that: (a) he checked with his employees on
the ground in South Africa that the requisite
percentage of anchors
had been installed, albeit in four zones instead of three; (b) the
emails from Scatec’s representatives
congratulating all
concerned were then sent, which reassured him that all was in order;
(c) he contacted his attorney to ascertain
whether there was any
clause in the Linde subcontract which would nonetheless preclude the
relevant invoices being issued, and
was advised that there was not;
(d) he had regard to the terms of the Linde LC in order to satisfy
himself of what was required
to be submitted to secure payment; (e)
he checked that the agreed period for payment by Scatec had expired;
and (f) he then certified.
None of this evidence could be seriously
challenged.
[39] That Scatec and
Terrafix are genuinely at loggerheads over the Linde and Dreunberg
subcontracts is clear. It might be that
the arbitrator hearing these
disputes exonerates Scatec and finds Terrafix to have breached the
subcontracts. That is not the issue.
The obligation of Sumitomo to
make payment under the LC exists entirely independently of the
underlying subcontracts between Scatec
and Terrafix. Provided that
the terms of the LC are met, Sumitomo must pay, unless fraud on
Reisch’s part is established.
[40] Of course the
possibility exists that Reisch has opportunistically seized upon the
objective facts to which I have referred
and found himself an escape
hatch. The fact remains however that on the probabilities as they
stand there is just not enough to
find fraudulent intent on his part.
He might have been wrong, he might even have been negligent, but I
cannot find that he knew
that he was wrong and that he presented the
demand under the Linde LC to Sumitomo in bad faith.
[41] Accordingly,
and although Reisch made a misrepresentation in the presentation of
the demand under the Linde LC to Sumitomo,
the applicants have failed
to show, on a balance of probabilities, that such misrepresentation
was fraudulent, whether deliberate
or as a result of fraudulent
diligence in ignorance.
[42] In relation to
the Dreunberg subcontract Scatec contended that the milestones for
product delivery in zones 1 to 3 were not
achieved; and that Reisch
is guilty of fraudulent diligence in ignorance by deliberately having
refrained from satisfying himself
that the milestones had been
achieved when he certified under the Dreunberg LC.
[43] However, what
Pienaar had alleged in her founding affidavit was that:
’76. I
furthermore annex marked “IP23” a stock management report
emanating from Terrafix’s main subcontractor,
Lerumo, setting
out the materials delivered to the Dreunberg site as at 25 November
2013. In reviewing this report, it is apparent
that as at the said
date Terrafix had not procured delivery of sufficient materials to
commence construction in accordance with
the schedule anywhere on
site. Terrafix’s own Weekly Progress Report (Week 47) for the
week preceding the milestone (annexed
and marked “IP24”)
further evidences Terrafix’s failure to properly perform in
terms of the relevant material
delivery milestones. One need only
look at the “cumulative variance” figures on pages 6 –
8 of the Weekly Progress
Report, which show the backlogs in delivery
of materials eg drive stations.’ [emphasis supplied]
[Scatec’s
additional reliance on Terrafix’s alleged failure to submit
certain documentation in order to claim payment
was abandoned at the
previous hearing.]
[44] The Dreunberg
LC is calibrated, not according to whether there were materials
sufficient to commence construction, but according
to percentages of
the quantity of materials delivered to site.
[45] In response to
this allegation Ramsauer relied on the specific invoices dated 27
November 2013 which were submitted for payment
reflecting the first
three percentage deliveries of product to the Dreunberg site. In
reply, Pienaar only took issue with what
documents had to be
submitted to claim payment. She did not contend that, in any event,
Terrafix had failed to deliver in accordance
with the payment
milestones. This does not mean that Ramsauer was correct and Pienaar
was wrong, and is but one of the issues which
will be determined at
the arbitration. It is however directly relevant to whether Reisch
was guilty of fraudulent diligence in
ignorance when he certified.
[46] In his
answering affidavit, Ramsauer had also alleged that:
‘38. In any
event, although Terrafix was not required to do so, Terrafix uploaded
documentation to the project place in respect
of the claims made in
the Dreunberg invoices. What Terrafix uploaded was the same as had
sufficed previously at the same stage
on the Linde project in order
to obtain payment. That Terrafix so uploaded documentation appears
from an email addressed by Brandhuber
to Scatec on 27 November 2013.
I attach a copy of Brandhuber’s email in this regard marked
MR15.’
[47] The email to
which Ramsauer referred was addressed to various Scatec
representatives (including Fremme). Its subject was
‘Invoice/Dreunberg/Delivery
on Site 1+2+3’ and read
‘…please see attached for the invoices. All documents
are uploaded to project place’.
Its attachments were debit
notes and invoices which reflected that the first three deliveries of
product on site had allegedly
taken place. Again, Pienaar only took
issue with the nature of the documents allegedly required by Scatec
to be uploaded to project
place in order for Terrafix to claim
payment and not whether such deliveries had indeed taken place.
[48] In an affidavit
deposed to by Reisch after conclusion of argument at the previous
hearing, he alleged that:
‘…to my
knowledge the material that is the subject of the invoices had been
delivered to site and all documentation
was in place, with the
consequence that Terrafix was entitled to payment in respect of the
invoices issued. The source of my knowledge
was documentation
available to me.’
[49] During his
testimony Reisch was asked about the basis on which he had certified
that payment milestones on the Dreunberg subcontract
had been met. It
emerged that the source of his knowledge was not only ‘documentation’
available to him but also discussions
which he had with certain
Terrafix employees.
[50] The
‘documentation’ to which Reisch had referred was the
covering email from Brandhuber dated 27 November 2013
to various
representatives of Scatec annexing the debit notes and invoices in
question. His evidence was further that he had asked
his employees
whether they had submitted whatever was necessary by way of
documentation and they had replied in the affirmative;
that the same
type of documentation had been submitted as in the Linde subcontract
and that ‘…my understanding was
if it is good enough for
Linde it should be…good enough for Dreunberg. This is why I
verified the invoice.’. Reisch’s
evidence was also that
he had spoken to Peter Jutten, the Terrafix employee in South Africa
who attended to the purchasing of product,
and who knew the details
of each delivery to site. Reisch’s testimony was that he was
told by his ‘Terrafix staff that
we reached these amounts, so
we are entitled [to] payment’. It was not suggested by Scatec
that any staff member of Terrafix
was part of a fraudulent conspiracy
or that Reisch was aware thereof. It was also not suggested that
Reisch should not have relied
upon the information allegedly conveyed
to him by the relevant Terrafix staff members. His testimony was
further that before sending
the invoices he checked with his legal
advisor to make sure that they could be dispatched.
[51] During argument
Scatec contended that Reisch’s testimony showed that he had
only made the most superficial and perfunctory
enquiries of his staff
and legal advisors before submitting the invoices. He had not
requested or had regard to important and relevant
documentation (e.g.
stock reports from Lerumo, or documents uploaded to project place
dealing with product delivery to Dreunberg).
It was also argued that
Reisch’s lack of interest in, and knowledge of, Terrafix’s
performance of its contractual obligations
was such that he did not
even know of the existence of weekly reports – prepared by
Terrafix and/or Lerumo – dealing
with product deliveries at
Dreunberg. It was accordingly contended that the “verification
exercise” conducted by Reisch,
such as it was, could not
genuinely or reasonably have satisfied a “reasonable person”
certifying that the amounts
claimed under the invoices were due.
[52] There is some
merit in these contentions. However carelessness or negligence does
not equate to an intentional avoidance of
proper investigation, which
is what Scatec and Itochu were required to show in order to establish
Reisch’s ‘fraudulent
diligence in ignorance’. There
is simply not enough to prove: (a) a misrepresentation; and (b) that
Reisch wilfully abstained
from establishing facts which he knew might
cause him not to certify in good faith.
[53] It follows that
Scatec and Itochu have also failed to discharge the onus that rests
upon them to establish, on a balance of
probabilities, that Reisch
acted fraudulently in the presentation of the Dreunberg LC.
Conclusion
[54] In the result I
make the following order:
The application is
dismissed with costs, including all reserved costs orders and the
costs of two counsel where employed.
J I CLOETE