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[2015] ZAWCHC 83
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Granbuild (Pty) Ltd v Minister of Transport And Public Works, Western Cape and Another (5021/2015) [2015] ZAWCHC 83 (5 June 2015)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
In
the matter between
Case
No: 5021/2015
DATE:
05 JUNE 2015
GRANBUILD
(PTY)
LTD
.................................................................................................
APPLICANT
And
MINISTER
OF TRANSPORT AND PUBLIC
WORKS,
WESTERN
CAPE
.............................................................................
FIRST
RESPONDENT
COMPASS
INSURANCE COMPANY (PTY)
LTD
.................................................................................................................
SECOND
RESPONDENT
Coram:
ROGERS J
Heard:
27 MAY 2015
Delivered:
5 JUNE 2015
JUDGMENT
ROGERS
J:
Introduction
[1]
The applicant
(‘Granbuild’) seeks an interdict to prevent the second
respondent (‘Compass’) from making
payment of
R13 285 053,45 to the first respondent in terms of a
construction guarantee. The first respondent is the Minister
of
Transport and Public Works, Western Cape but for convenience I shall
refer simply to the Department.
[2]
During 2011 and
pursuant to a tender process a building contract was concluded
between the Department and Granbuild for the construction
of
extensions to the Vredenburg Hospital. Work started in January 2012.
For some reason the building contract was only signed in
February
2013. In the intervening period Granbuild engaged a number of
so-called selected subcontractors on the instructions of
the
Department. The signed building contract, however, made provision for
nominated subcontractors rather than selected subcontractors.
The
main contractor carries less risk in respect of nominated
subcontractors than selected subcontractors. After February 2013
Granbuild adopted the position that the Department was not entitled
to instruct it to appoint selected subcontractors. The Department’s
view was that the building contract required rectification to bring
it in line with the common intention of the parties.
[3]
In March 2014 Granbuild
issued an application (‘the first application’) for a
declaration that the Department was not
entitled to instruct
Granbuild to engage selected subcontractors. The Department opposed
and brought a counter-application for
rectification. In May 2014 an
order was made referring the matter to oral evidence. The oral
evidence was heard by Schippers J.
On 2 March 2015 he delivered
judgment, dismissing the main application and granting the
counter-application. Granbuild applied
for leave to appeal which the
learned judge dismissed on 15 April 2015. There is currently pending
before the Supreme Court of
Appeal a petition for leave to appeal.
[4]
On 29 October 2014, and
while the first application was pending, the Department’s
principal agent gave Granbuild notice that
it was in default of its
obligation to proceed with the works with due skill, diligence,
regularity and expedition and afforded
it ten working days to remedy
the default. Granbuild’s response, set out in a letter dated 11
November 2014, did not satisfy
the Department, and on 13 November
2014 the Department cancelled the building contract.
[5]
Granbuild disputed the
validity of the cancellation. In December 2014 it delivered an urgent
application (‘the second application’)
for an order,
inter alia, that the building site be restored to it and that the
Department and principal agent be interdicted from
interfering with
Granbuild’s right to conduct the works. Granbuild contended
that the purported cancellation was a repudiation
which it did not
accept. Granbuild’s case in the founding papers was that the
delays were a result of the Department’s
insistence on giving
instructions for the appointment of selected subcontractors,
instructions which Granbuild said were invalid
in the light of the
signed building contract. In its answering papers the Department
sought to demonstrate that Granbuild’s
delays were unrelated to
the disputed selected subcontracts. Granbuild in reply contended for
the first time that the Department’s
insistence on instructing
Granbuild to appoint selected subcontractors was a repudiation.
[6]
The second application
was to have been heard on 9 March 2015. However, and in the light of
Schippers J’s judgment in the
first application, Granbuild
decided to withdraw the second application and tendered the
Department’s costs.
[7]
On 10 March 2015, about
one week after Schippers J’s judgment, the Department gave
written notice to Compass that it required
payment in terms of the
guarantee on the basis that the building contract had been duly
cancelled. In a letter to the Department
dated 17 March 2015
Granbuild’s attorneys expressed the view that the Department
could not assert its alleged rights until
the appeal process had run
its course. They said that in any event the circumstances entitling
the Department to call up the guarantee
were not present. They sought
an undertaking from the Department by 23 March 2015 to withdraw the
demand failing which urgent relief
would be sought.
[8]
The undertaking was not
forthcoming, and the present application followed on 23 March 2015.
At that stage the application for leave
to appeal in the first
application was pending before Schippers J.
The grounds
advanced and relief sought
[9]
Granbuild advances two
grounds for interdicting payment under the guarantee: (i) In terms of
the building contract the Department
is not entitled to cancel if it
is itself in breach. The Department’s insistence on the
appointment of selected subcontractors
was a repudiation which
resulted in the Department’s being in breach. It was thus not
entitled to cancel. Although the foundation
for this assertion was
rejected by Schippers J, Granbuild is entitled to an interim
interdict pending the finalisation of the appeal
process, since
otherwise an appeal would be rendered nugatory. (ii) In any
event, and even if the Department was entitled
to cancel the
contract, the guarantee cannot be called up merely because the
contract has been cancelled. The necessary precondition
for payment
under the guarantee is that the Department should have a ‘right
of recovery against’ Granbuild in terms
of clause 33 of the
contract. The Department has no such right of recovery at the present
time.
[10]
The interdict sought in
the notice of motion is expressed as an interim interdict pending the
finalisation of the appeal process.
However, Mr Fitzgerald SC, who
led Mr Traverso on behalf of Granbuild, submitted that if the second
of its grounds for relief were
sound Granbuild would be entitled to a
final interdict. Mr Jacobs SC, leading Ms Cornelissen on behalf of
for the Department, did
not object to an amendment of the notice of
motion. Compass, I should add, has not participated in the
proceedings and abides the
result.
The
guarantee
[11]
The guarantee, which
Compass signed on 9 February 2012, is headed ‘Variable
Construction Guarantee’ and as being a guarantee
for the
execution of a contract in terms of a JBCC Principal Building
Agreement (Edition 4.1 of March 2005). The first clause of
the
guarantee states, ‘with reference to’ the contract
between Granbuild and the Department arising from an identified
tender, that Compass held at the Department’s disposal the sum
of R13 285 053,45, being 10% of the contract sum
excluding
VAT, ‘for the due fulfilment of the contract’. Clause 2
stated that from the date of issue up to the date
of payment of the
amount in the practical completion certificate Compass would be
liable ‘to the maximum amount of 10% of
the contract sum
(excluding VAT)’; that from the day following the last
certificate of practical completion and up to the
date of the last
final completion certificate Compass’s liability would be
reduced to 3% of the value of the works excluding
VAT; that from the
day following the date of the last final completion certificate and
up to the date of settlement of the amount
in the last final payment
certificate Compass’s liability would reduce to 1% of the value
of the works excluding VAT; and
that the guarantee would expire on
the date of payment of the amount in the last final payment
certificate.
[12]
Clauses 3 to 7 read
thus:
‘
3. The
guarantor hereby renounces the benefits of the exceptions
non
numeratae pecunia; non causa debiti
;
and all other
exceptions which could be pleaded against the enforcement of this
guarantee, with the meaning and effect whereof I/we
declare
myself/ourselves to be conversant, and undertake to pay the employer
the amount guaranteed, during the period when the
claim is received
by the guarantor, on receipt of a written demand from the lawyer to
do so, and which demand the employer may
make if the employer has a
right of recovery against the contractor in terms of clause 33.0 of
the contract.
4. Subject to
the above, but without in any way detracting from the employer’s
rights to adopt any of the
procedures provided for in the contract,
the said demand can be made by the employer at any stage prior to the
expiry of this guarantee.
5. The amount
paid by the guarantor in terms of this guarantee may be retained by
the employer on condition that
upon the issue of the last final
payment certificate, the employer shall account to the guarantor
showing how this amount has been
expended and refund any balance due
to the guarantor.
6.
The employer shall have the absolute right to arrange his affairs
with the contractor in any manner which the
employer deems fit and
the guarantor shall not have the right to claim his release on
account of any conduct alleged to be prejudicial
to the guarantor.
Without derogating from the
aforegoing
,
any compromise, extension of the construction period, indulgence,
release or variation of the contractor’s obligation shall
not
affect the validity of this guarantee.
7. This undertaking
is neither negotiable nor transferable, and:
7.1 must be
surrendered to the guarantor at the time when the employer accounts
to the guarantor in terms of clause 5
above, or
7.2 shall lapse in
accordance with clause 2 4 above; and
7.3 shall not be
interpreted as extending the guarantor’s liability to anything
more than the payment of the amount
guaranteed.’
The
building contract
[13]
Although the building
contract had not been signed at the time the guarantee was issued, it
is a JBCC contract of the kind contemplated
in the guarantee.
[14]
Clause 2 of the
guarantee makes reference to three stages. These are dealt with in
the building contract in clause 24.3.1 (practical
completion
certificate), clause 26.2.1 (final completion certificate) and clause
34.3 (final payment certificate).
[15]
Clause 14 of the
building contract states that the contractor will have the right to
select whether to provide security in the form
of a variable
construction guarantee in terms of clause 14.3 or a fixed
construction guarantee in terms of clause 14.4. In the
schedule
Granbuild chose a variable construction guarantee. Clause 14.3
provides that the variable construction guarantee, to be
equal in
value to 12,5% of the contract sum, will come into force, be
administered and expire in terms of the JBCC Construction
Guarantee
Form and that the Department will return the guarantee to Granbuild
within 14 calendar days of its expiring. Clause 14.3.4
provides as
follows:
‘
Where
the employer has a right of recovery against the contractor in terms
of clause 33.0, the employer may issue a written demand
in terms of
the variable construction guarantee.’
Although clause 14.3 requires a guarantee of 12,5%, the
guarantee accepted by the Department was for 10%. This is at least
one of
the respects in which the guarantee issued by Compass differed
from the guarantee envisaged in clause 14.3
[16]
It is convenient next
to refer to clause 36, dealing with cancellation. In terms of clause
36.1.1 the Department is entitled to
cancel if Granbuild fails to
comply inter alia with clause 15.3, which requires Granbuild to
proceed with due skill, diligence,
regularity and expedition. Clauses
36.2 and 36.3 make provision for the principal agent to give a ten
day notice to remedy an alleged
default. Clause 36.6 states that the
employer may not cancel if it is itself in material breach of the
agreement. Clause 36.5 sets
out what must be done if the employer
cancels. The contractor must cease work and vacate the site. The
principal agent must compile
a status report. On completion of the
status report the principal agent must ‘commence forthwith and
complete a final account
within a reasonable time’. Where
applicable the employer may apply the penalty stated in the schedule
up to the date of cancellation
and thereafter recover damages from
the contractor. The principal agent may not issue further payment
certificates until the quantum
of damages has been determined and the
final account completed. Thereafter the final payment certificate
must be issued.
[17]
Clauses 31 and 34 make
provision for interim and final payments. Ordinarily one would expect
these payments to be made by the employer
to the contractor. However,
and because inter alia of adjustments to the contract value over
time, an interim or final payment
certificate might reflect that it
is the contractor who must pay the employer (clauses 31.12 and
34.13). If the amount which the
one party owes the other is not paid
within seven calendar days,
[1]
the former is liable to pay default interest, and the amount of such
default interest must be included in the recovery statement
referred
to in clause 33. Where it is the contractor who must make payment to
the employer, such payment is ‘subject to the
employer giving
the contractor a tax invoice for the amount due’ (clauses 31.12
and 34.13).
[18]
Clause 33 is headed
‘Recovery of Expense and Loss’. Clause 33.1 states that
the principal agent must issue a monthly
recovery statement
simultaneously with that month’s payment certificate. In broad
terms the recovery statement sets out the
penalties, default
interest, losses and the like owing by the one party to the other.
Amounts due to the employer under a recovery
statement may include
penalties levied in terms of clause 30, default interest in terms of
clause 31.12 and expense and loss referred
to in clause 33.2. The
latter sub-clause provides that the employer may ‘recover
expense and loss incurred or to be incurred
resulting from’
various listed causes, including cancellation of the agreement in
terms of clause 36. The amount owing by
the one party to the other in
terms of the recovery statement must be included in the accompanying
payment certificate. If, as
a result, the payment certificate
reflects an amount owing to the employer and the contractor has not
paid it within seven calendar
days, clause 33.3 provides that the
amount may be recovered by the employer ‘from all or any of the
following in no specific
sequence’, namely from subsequent
payment certificates, from the security provided in terms of clause
14 (in the present
case, Compass’ variable construction
guarantee) or from the contractor ‘as a debt’.
[19]
Clause 33.6 reads as
follows:
‘
Where
a provisional sequestration or provisional liquidation order has been
granted or where an order has been granted which commences
sequestration, liquidation, bankruptcy, receivership, winding-up or
any similar effect against the contractor or this agreement
is
cancelled in terms of clause 36.0, the employer may issue a demand to
the guarantor in terms of the construction guarantee …
held as
security.’
[20]
Clause 40 contains
procedures for dispute settlement by way of mediation, adjudication
and arbitration. Clause 40.9 stipulates that
notice of a dispute
‘shall not relieve the parties from liability for the due and
timeous performance of their obligations’.
[21]
Clause 41 of the
standard JBCC contract form varies certain of the preceding clauses
in cases where the employer is an organ of
State. Clause 41 deletes
provisions in the standard contract relating to selected
subcontractors. The Department’s claim
for rectification, which
Schippers J granted, included a claim for the deletion of clause 41
as a whole, the result of which was
to leave intact the preceding
clauses of the contract relating to selected contractors.
The
counter-indemnity
[22]
Granbuild’s
obligations to Compass in respect of guarantees furnished on its
behalf, including the guarantee in the present
case, are set out in a
counter-indemnity dated 17 April 2009.
[23]
In terms of clause 1.2
of the counter-indemnity, Granbuild undertakes to pay Compass on
demand any sum which Compass may be called
upon to pay under a
guarantee, whether or not Compass at such date shall have made
payment thereunder and whether or not Granbuild
admits the validity
of the claim. If Granbuild disputes the validity or amount of a
claim, it must nevertheless deposit the amount
thereof with Compass,
on demand, pending the adjudication or settlement of the dispute.
Clause 5.1 provides that Compass may in
its sole discretion, and even
if it is not obliged so to do, pay the employer (referred to in the
counter-indemnity as the ‘creditor’)
such sum as may be
required to release Compass from its obligations, contingent or
otherwise, in which event an equivalent sum
shall become immediately
due and payable by Granbuild to Compass.
Demand or
conditional guarantee?
[24]
A distinction is drawn
between demand guarantees and conditional guarantees. I was referred
to the leading authorities on the subject,
including:
Lombard
Insurance Co Ltd v Landmark Holdings Pty Ltd & Others
2010
(2) SA 86
(SCA);
Dormell
Properties 282 CC v
Renasa
Insurance Co Ltd & Others NNO
2011
(1) SA 70
(SCA) (the dissenting judgment of Cloete JA was vindicated
by later authority);
Minister
of Transport and Public Works, Western Cape, & Another v Zanbuild
Construction (Pty) Ltd & Another
2011
(5) SA 528
(SCA);
Guardrisk
Insurance Company Ltd & Others v Kentz (Pty) Ltd
[2014]
1 All SA 307
(SCA); and
Coface
South Africa Insurance Co Ltd v
East London Own Haven t/a Own Haven Housing Association
2014
(2) SA 382
(SCA).
[25]
The essential
difference between the two kinds of guarantees is this. In the case
of a demand guarantee the guarantor’s obligation
to pay is
subject only to delivery by the holder of a demand in due form. In
the case of a conditional guarantee the guarantor’s
obligation
to pay is subject to the occurrence of some underlying event or the
existence of some underlying state of affairs, the
presence or
absence of which is a matter for objective determination. Beyond
this, the precise circumstances in which a guarantee
becomes payable
depend on the interpretation of the guarantee. In the case of a
demand guarantee, the guarantee will determine
what it is that the
demand must state and enclose in order for the demand to be in due
form. In the case of a conditional guarantee
the guarantee will
determine what occurrence or state of affairs must exist in order for
the guarantee to be payable. A conditional
guarantee may, of course,
also contain provisions as to the form of the demand.
[26]
There is no doubt that
the guarantee in the present case is a conditional guarantee. The
Department can only make demand if the
employer has a right of
recovery against the contractor in terms of clause 33 of the
contract. It is not sufficient, and perhaps
not even necessary, that
the demand should state that the employer has a right of recovery
against the contractor in terms of clause
33. The right of recovery
must exist as an objective fact.
[27]
The real dispute,
insofar as the interpretation of the guarantee is concerned, is
whether a right of recovery within the meaning
of the guarantee
exists merely because the Department has cancelled the contract or
whether there is such a right only if the principal
agent has issued
a final account reflecting that Granbuild is indebted to pay an
amount of money to the Department. Granbuild’s
first ground for
an interdict addresses the possibility that the first of these
interpretations is the one preferred by the court.
On that
assumption, Granbuild contends that it is entitled to interim
protection because it may be found through the appeal process
that
the Department was not entitled to cancel the contract. The second
ground of review urges that the second interpretation is
correct. It
is common cause, in that event, that the principal agent has not
issued a final account or final payment certificate.
First
ground – disputed cancellation and pending appeal
[28]
Although Mr Jacobs on
behalf of the Department raised a question of locus standi, it is
convenient to defer a discussion of that
point until after a
consideration of the grounds for the interdict. The first ground
proceeds on the assumption (against Granbuild)
that the Department is
entitled to call up the guarantee if its cancellation of the building
contract on 30 November 2014 was valid.
Granbuild says that, if it is
granted leave to appeal and if the appeal succeeds, it will be
established that the Department was
in breach of the contract as at
November 2014 by insisting on the appointment of selected
subcontractors, with the result that
clause 36.6 precluded the
Department from cancelling the contract. Although the foundation for
this argument was rejected by Schippers
J, another court might reach
a different conclusion.
[29]
The question whether a
court can grant an interim interdict pending an appeal, when the
court has already found the alleged right
does not exist, has been
dealt with in several cases. In
Plettenberg
Bay Entertainment (Pty) Ltd v Minister
van
Wet en Orde en ʼn
Ander
1993 (2) SA 396
(C)
Brand J (as he then was) had dismissed an urgent application for an
interdict to prevent the respondents from closing the applicant’s
casino pending the determination of an action. The applicant’s
alleged prima facie right was its right to conduct a casino
under
certain legislation. Brand J found that the conducting of the casino
business was, on the applicant’s own version,
unlawful and that
the applicant thus had no prima facie right. The applicant thereafter
brought an urgent application for an interim
interdict pending a
proposed appeal against Brand J’s decision. This urgent
application also came before Brand J. He dismissed
it on the basis
that the interim interdict depended on the same prima facie right
that he had already found not to exist and that
there was thus no
jurisdiction to grant the interdict. He found authority for this view
in several earlier judgments.
[30]
Mr Fitzgerald referred
me to the criticism of this decision by the learned authors of
Herbstein and Van
Winsen The Civil Practice of the High Courts and the Supreme Court of
Appeal of South Africa
5
th
Ed at 1485-1486. The learned authors regard the
Plettenberg
Bay Entertainment
decision
as in conflict
with
Airoadexpress (Pty) Ltd v Local Road Transportation Board, Durban, &
Others
[1986] ZASCA 6
;
1986 (2) SA
663
(A) where Kotze JA referred to a ‘general power’ or
‘inherent jurisdiction’ to grant interim relief ‘to
avoid injustice and hardship’. This power was described as a
salutary one ‘which should be jealously preserved and
even
extended where exceptional circumstances are present and where, but
for the exercise of such power, a litigant would be remediless’
(at 676B-D). Joubert JA concurred as did Grosskopf JA who delivered
his own judgment. That case was concerned with an interim mandatory
interdict in terms whereof the relevant road transportation board was
to issue certain permits to the applicant pending the final
determination of a review application. The court considered that
there was a strong prima face case that the permits had been wrongly
refused.
[31]
Mr Fitzgerald also
referred me to
Indwe
Aviation (Pty) Ltd v Petroleum Oil
and Gas Corporation of South Africa Pty Ltd & Another (No 2)
2012
(6) SA 110
(WCC) where Baartman J distinguished
Plettenberg
Bay Entertainment
.
In
Indwe Aviation
an
interim interdict was granted by Blignault J on the basis that the
applicant had inter alia established a prima facie right.
On the
return day Baartman J discharged the interim interdict, finding that
the right had not been established in accordance with
the test for
final interdicts. She granted leave to appeal. The applicant then
brought an application for an interim interdict
pending the
determination of the appeal. Baartman J distinguished
Plettenberg
Bay Entertainment
on
the basis that there Brand J had already found there to be no prima
facie right. In
Indwe
Aviation
, by
contrast, Blignault J had found there to be a prima facie right and
Baartman J’s dismissal of the application for a final
interdict
did not show that there had not been or still was not a prima facie
right (paras 22-25). She said that in any event it
would be at odds
with our constitutional dispensation if one were to hold that a
court, in the circumstances of the matter before
her, did not have a
discretion. She proceeded to apply the principles pertaining to
interim interdicts and granted the relief prayed.
[32]
It will be appreciated
that in
Indwe
Aviation
the
applicant not only established a prima facie right; it had also been
granted leave to appeal, an indication that Baartman J
thought there
were reasonable prospects of another court differing from her. I
should add that where a final interdict is refused
on a point of law
rather than because of factual disputes, the court’s finding
would be equally dispositive of an application
for an interim
interdict. It is in cases of factual disputes that one may encounter
cases, of which
Indwe
Aviation
seems to
be an example, where on the papers the applicant has a prima facie
case but nevertheless fails in obtaining final relief.
[33]
The most recent
relevant authority in this division is the judgment of Schippers J in
Quality Labels
Solutions CC & Others v Head of Department of Culture, Sports and
Recreation, Mpumalanga Province, & Others
[2013]
ZAWCHC 193
, to which neither side made reference. Schippers J
discussed
Plettenberg
Bay Entertainment
and
Indwe Aviation
.
He assumed without finally deciding that there was jurisdiction to
grant an interim interdict even where the court has found the
right
not to exist. In regard to the test to be applied, he found the
discussion of the question by the English Court of Appeal
in
Novartis
AG v
Hospira
UK Ltd
[2013]
EWCA Civ 583
to be helpful. After a discussion of that case,
Schippers J expressed his conclusions as follows:
‘
[18]
Bearing
in mind the differences between the English law relating to
injunctions and our law, I consider that the concept of a prima
facie
right is sufficiently flexible to accommodate the standard of “a
real prospect of success on appeal”, as the
degree of proof
required of an applicant to establish a prima facie right in an
interdict pending an appeal. This standard posits
a higher threshold
than a prima facie right although open to some doubt, and is likely
to be more difficult to meet, mainly because
different considerations
apply to the grant or refusal of interim relief once a trial has
taken place or an application has been
decided.
[19]
It follows that the requirement of a reasonable prospect of success
on appeal which must be satisfied before leave to appeal
is granted,
must not be equated with the requirement of a real prospect of
success on appeal. Otherwise it would mean that a party
granted leave
to appeal would automatically establish a
prima
facie
right for the purpose of an interdict pending appeal.
[20]As in the case of an
ordinary interim interdict, the establishment of a prima facie right
– a real prospect of success
on appeal – should not be
treated as a threshold requirement. Instead, it is related to
the other requirements, such
as irreparable harm, the balance of
convenience and the absence of an ordinary remedy; and remains an
element of the balancing
process which a court undertakes in the
exercise of its discretion whether or not to grant a temporary
interdict pending an appeal,
after considering the affidavits as a
whole.’
[34]
It seems to me, if I
may respectfully say, that the ground on which Baartman J
distinguished
Plettenberg
Bay Entertainment
is
sound and that there is much to be said for Schippers J’s
conclusions regarding the approach to be followed once a prima
facie
right is being assessed in the context of a pending appeal. From this
it would follow that there would in principle be jurisdiction
in the
present case to grant an interim interdict since there has been no
prior determination by this court that Granbuild does
not have at
least a prima facie case. Schippers J, in his judgment of 2 March
2015, was concerned with questions of final relief.
[35]
However, to establish a
prima facie right pending an appeal, Granbuild would need, in
accordance with the test laid down by Schippers
J, to satisfy me that
it has a ‘real prospect of success’ on appeal. Since
Schippers J has already found that Granbuild
has no reasonable
prospects of success on appeal, Granbuild does not get out of the
starting blocks unless it can persuade me that
Schippers J’s
assessment of its prospects of success on appeal were wrong.
Granbuild’s deponent, Mr Donough, said that
he would ensure
that the papers in the first and second applications were
placed before the court hearing the present matter.
Mercifully Mr
Donough did not make good on his promise. The papers in the first
application, I should add, would include a transcript
of the oral
evidence which Schippers J heard. Granbuild’s founding papers
in the present application did not even summarise
the key features of
the evidence and main points on which it believed it had reasonable
prospects of success on appeal.
[36]
In argument Mr
Fitzgerald did not elaborate upon Granbuild’s bald assertion
that it had a prima facie right. He realistically
accepted, I think,
that it would not be a profitable use of judicial resources (even if
it were a profitable enterprise for counsel)
to expect me to immerse
myself in the previous applications with a view to forming an opinion
on Granbuild’s prospects of
success. What I can say is that I
have read Schippers J’s main judgment and his judgment
dismissing the application for leave
to appeal. These judgments
contain nothing which would suggest to my mind, as a person not
steeped in the papers and the evidence,
that the learned judge
obviously went wrong in some respect. I should add that he made
strong adverse credibility findings regarding
Mr Donough, who was one
of the persons who gave oral evidence on Granbuild’s behalf.
The applicant has not, in the present
proceedings, identified any
alleged misdirections by the learned judge in his assessment of the
evidence or summarised how his
factual findings might be impeached on
appeal.
[37]
Mr Fitzgerald urged
upon me a passage from the judgment of Megarry J in
Erinford
Properties Ltd v Cheshire County
Council
[1974] 2
All ER 448
(Ch) where the judge reminded the reader that no human
being is infallible and that a judge who feels no doubt in dismissing
a
claim for an interlocutory injunction may, perfectly consistently
with that decision, recognise that his decision might be reversed.
However, the mere notional possibility that Schippers J might have
erred is not enough. Unless interim interdicts pending appeals
are to
be had as of right (which nobody could suggest is the law), the
applicant needs to persuade the court of at least some threshold
level of prospects of success.
[38]
Even if Granbuild had
persuaded me that its prospects of success rose to some relevant
threshold, I would not – when balancing
all the factors
relevant to the grant of an interim interdict – come down in
its favour. Granbuild said in its founding papers
that because of the
counter-indemnity it will have to pay Compass on demand any sum which
the latter is called upon to pay to the
Department. In this event
there would be ‘inevitable prejudice and loss’ to
Granbuild. Mr Donough added that as a result
of the Department’s
demand Granbuild has been unable to obtain similar guarantees from
other insurers and banks, which has
had a significant adverse effect
on its ability to comply with its obligations in terms of other
contracts. Granbuild was thus
at risk of losing those contracts and
of being exposed to significant claims for damages.
[39]
However, Granbuild does
not allege that it does not have the money to make good on the
counter-indemnity pending the determination
of an appeal. If
Granbuild ultimately gets leave to appeal and succeeds in the appeal,
and if its further contentions are sound,
it will be entitled to
recover the money. At least if it makes good on the
counter-indemnity, Granbuild should not have difficulty
in procuring
guarantees from other insurers and banks. The refusal of an interim
interdict would thus not render an appeal nugatory.
[40]
Mr Fitzgerald submitted
in argument that payment of the guarantee would cause Granbuild cash
flow problems. Granbuild’s papers
do not say this. However, an
assumption that Compass’s payment of the guarantee would place
Granbuild in financial difficulty
and possibly lead to its demise
cuts both ways, because it raises the distinct possibility that the
proposed appeal and the present
application are not concerned so much
with preserving a right in which Granbuild has genuine belief but
with buying time through
meritless proceedings. This is all the more
reason for requiring Granbuild to establish a real prospect of
success on appeal as
a prerequisite for interim relief.
[41]
It follows that I
reject Granbuild’s first ground for an interdict.
The
second ground – a ‘right of recovery’?
[42]
The second ground
raises a narrow point of interpretation, namely the meaning of the
following words in clause 3 of the guarantee:
‘… if the
employer has a right of recovery against the contractor in terms of
clause 33.0 of the contract’.
[43]
The contract referred
to in the condition is obviously the JBCC building contract between
the Department and Granbuild. The ‘right
of recovery’ is
a right of recovery by the Department against Granbuild in terms of
the building contract, not a right of
recovery by the Department
against Compass in terms of the guarantee.
[44]
If the guarantee were
co-extensive with the guarantee contemplated in the building
contract, the Department could call up the guarantee
upon
cancellation in terms of clause 33.6, even though the principal agent
had not yet prepared the final account. Clause 33.6
says so in plain
terms.
[45]
Clause 14.3.2 of the
building contract states that the variable construction guarantee
shall be administered and expire in terms
of the JBCC Construction
Guarantee form. It is a reasonable assumption that the said form
provides for a guarantee tailored to
the provisions of the JBCC
building contract. However, I cannot assume in the present case that
the guarantee is in the standard
JBCC form. No evidence to that
effect was adduced. Insurance companies and employers may have their
own reasons for using forms
which depart from the standard JBCC form;
or there may be negotiated changes in specific instances. My reading
of the cases suggests
that guarantees linked to JBCC building
contracts vary considerably in content.
[46]
I referred counsel
during argument to an unreported judgment of a full bench of the
KwaZulu Natal Provincial Division (Hurt J, with
Theron and Ntshangase
JJ concurring) in
Federated
Insurance Guarantee Brokers Pty Ltd v Johannesburg Development Agency
(Pty) Ltd
[2007]
ZAKZHC 58
, upholding a decision of
Niles-Dunner
J
enforcing payment of
a variable construction guarantee. The JBCC building contract (the
3
rd
edition) contained clauses 14, 33 and 36 in terms similar, for
relevant purposes, to the clauses in the contract between the
Department
and Granbuild. The variable construction guarantee, which
read as follows, was clearly designed to ensure that the employer
could
call up the guarantee in all the circumstances envisaged in the
building contract:
‘
4.0
Subject
to the guarantor's maximum liability referred to in clause 1.0 and
2.
0
above, the guarantor hereby
binds itself in favour of the Employer (for?/ to pay?) the certified
sum upon receipt of the documents
identified in clauses 4.1 to 4.3,
below:
4.1.A
copy of the first written demand issued by the Employer to the
Contractor stating that payment of a sum certified by the Principal
Agent has not been made in terms of the agreement, and failing such
payment within seven (7) calendar days, the Employer intends
to call
upon the Guarantor to make payment in terms of 4.2;
4.2.A
first written demand issued by the Employer to the Guarantor at the
Guarantor's domicilium citandi et executandi with a copy
to the
Contractor stating that a period of seven (7) calendar days has
elapsed since the first written demand in terms of 4.1 and
that the
sum has still not been paid therefore the Employer calls up this
Construction Guarantee and demands payment of the sum
certified from
the Guarantor.
4.3.A
copy
of
the
payment certificate which entitles the Employer to receive payment in
terms
of
the
Agreement of the amount certified in clause 4.0 above.
5.0.
Subject to the Guarantor's maximum liability referred to in clauses
1.0 and 2.0 above, the Guarantor undertakes to pay the
Employer the
Guaranteed sum or the full outstanding balance upon receipt of the
first written demand from the employer to the Guarantor
at the
Guarantor's domicilium citandi et executandi calling up this
Construction Guarantee stating that
5.1
The
Agreement has been cancelled due to the Contractor's default and
that
the Construction Guarantee is called up in terms of 5.0. The
demand
shall enclose a copy of the notice of cancellation;
…
7.0.
Where the Guarantor is a registered insurer in terms of the Short
Term Insurance Act No. 53 of 1998 and has made payment in
terms of
5.0, the Employer shall, upon the date of issue of the final payment
certificate, submit an expense account to the Guarantor
showing how
all monies received in terms of the Construction Guarantee have been
expended and shall refund to the Guarantor any
resulting surplus. All
monies refunded to the Guarantor in terms of this Construction
Guarantee shall bear interest at Standard
Bank of South Africa
Limited's prime overdraft rate compounded monthly and calculated from
the date payment was made by the Guarantor
to the Employer until the
date of refund.’
[47]
A guarantee in the
above form is a demand guarantee because it is concerned with what
the demand must state and enclose rather than
with the occurrence or
existence of the underlying event or state of affairs as an objective
fact. Importantly, clauses 4 and 5
recognise the two distinct
circumstances in which the JBCC contract envisages that payment of
the guarantee can be demanded, namely
where there is an amount owing
to the employer pursuant to a payment certificate issued by the
principal agent and where the contract
has been cancelled in terms of
clause 36.
[2]
Niles-Dunner
J found, and the full bench agreed,
that where the guarantee was called up following cancellation it was
not necessary for the employer
to wait until a final account was
prepared. The employer could insist on immediate payment of the
guarantee, with adjustments to
follow later in terms of clause 7 of
the guarantee.
[48]
The construction
guarantee considered by Gauntlett AJ in
MIS
Maintenance CC t/a NM Construction v
Africon
Infrastructure Projects Pty Ltd &
Another
[2008]
ZAWCHC 304
was, except for being fixed rather than variable,
identical to the one in
Federated
Insurance
.
[3]
The same is true of
Petric
Construction CC
t/a AB Construction v Toasty Trading t/a Furstenberg Property
Development & Others
2009
(5) SA 550
(ECG) (see para 14).
[4]
[49]
The guarantee furnished
by Compass in the present case is unlike the above guarantees in two
material respects. Firstly, it is not
a demand guarantee. It does
not, as Gauntlett AJ put in
MIS
Maintenance
,
‘proclaim its autonomy’. Second, it does not contain
express language to the effect that the guarantee may be called
up
simply upon cancellation or upon a statement that the contract has
been cancelled.
[50]
A right on the part of
the Department to recover money from Granbuild in terms of a payment
certificate as envisaged in clause 33.3,
which might be an interim
payment certificate in terms of clause 31 or a final payment
certificate in terms of clause 34 or clause
36.5, would undoubtedly
be a ‘right of recovery against the contractor in terms of
clause 33.0’ within the meaning
of the guarantee. Certificates
of this kind have been held to give rise to a distinct cause of
action for payment of the amount
certified (see
Thomas
Construction (Pty) Ltd (In Liquidation) v Grafton Furniture
Manufacturers (Pty) Ltd
1986
(4) SA 510
(N) at 514I-J and cases there collected; cf on appeal at
1988 (2) SA 546
(A) at 562E-F). In terms of clause 31.12 Granbuild
would be obliged, within seven calendar days of the issue of the
payment certificate,
to pay the certified amount to the Department,
subject to the Department’s giving Granbuild a tax invoice for
the amount
due. In terms of clause 40.9 the recording of a dispute by
Granbuild would not relieve it of its obligation to make payment (see
Basil Read (Pty) Ltd
v Beta Hotels (Pty) Ltd & Others
2001
(2) SA 760
(C) at 766J-767F). Clause 33.3 states that where the
payment certificate reflects an amount in favour of the Department
and it
has not been paid by Granbuild, the amount ‘may be
recovered by the employer from’ inter alia the construction
guarantee.
[51]
Clause 33.6, by
contrast, does not itself make provision for a ‘right of
recovery’. It simply states that if the agreement
is cancelled
in terms of clause 36 or liquidation proceedings are commenced
against the contractor, the employer may issue a demand
to the
guarantor. The reason the employers were entitled to enforce the
guarantees in
Federated
Insurance
,
MIS
Maintenance
and
Petric
Construction
was not because the
cancellation per se constituted a ‘right of recovery’ but
because the guarantees accorded with clause
33.6 in stating that
payment could be demanded from the guarantor if the employer
cancelled the contract (or, more accurately,
if the employer
delivered a demand to the guarantor stating that the contract had
been cancelled and attaching a copy of the notice
of cancellation)
[52]
The cancellation of a
contract may but does not necessarily give rise to a claim for
damages. Whether damages are recoverable depends
on whether the
cancelling party has suffered loss (see Van der Merwe et al
Contract
General Principles
4
th
Ed at 355 -358). The high watermark of the Department’s case on
that score in the answering affidavit is an assertion that
the
Department ‘is entitled to be compensated for the losses which
it has suffered or any potential losses that it may suffer’.
[5]
This falls well short of asserting an existing right to recover a
monetary amount from Granbuild, even if one assumes that upon
investigation it will emerge that the Department has suffered
recoverable losses.
[53]
More importantly,
though, the mere existence of a right to claim damages for breach of
contract in a presently unquantified amount
is not, in my view, what
is envisaged by the phrase used in the guarantee, namely ‘a
right of recovery … in terms
of 33.0’. The machinery
which the building contract creates for the coming into existence of
rights of recovery is the process
of payment certificates issued by
the principal agent. That the guarantee should be construed
consistently with this machinery
is important for the practical
implementation of the guarantee and for the protection of the rights
of the employer and guarantor.
If one were to hold that ‘right
of recovery’ in the guarantee refers not to the existence of a
payment certificate
entitling the employer to recover a certified
amount but to the notional underlying contractual right to which a
certificate is
intended to give effect, the guarantor would only be
obliged to pay if the underlying contractual right were established.
Put differently,
the contractor would be entitled, even where there
has been a certificate, to go into the underlying merits. A guarantee
on those
terms would be conceivable but unbusinesslike, at least from
the perspective of the employer and guarantor, who are the immediate
parties to the guarantee.
[54]
This conclusion would
be fortified if one were to construe the guarantee in the present
case as entitling the Department to make
repeat demands from Compass
of so much as is from time to time certified as recoverable by the
Department from Granbuild. The guarantee
is not as explicit on this
score as, for example, in the
Federated
Insurance
case,
where the guarantee provided (in cases apart from demand following
cancellation or liquidation) that the employer could make
demands for
certified amounts up to the maximum of the guarantee. Nevertheless, I
do not think it would be a reasonable and businesslike
interpretation
of the guarantee to say that the Department could demand payment from
Compass of the full guaranteed sum of R13 285 053,45
merely
because a payment certificate reflected that Granbuild owed the
Department (say) R75 000 (cf
Granbuild
para 21).
Conversely, it would not be reasonable or businesslike to conclude
that the Department could only ever make one demand.
Clause 2.1
states that the guarantor will be liable ‘to the maximum amount
of 10%’ (a maximum limit which produces
in accordance with
clauses 2.2 and 2.3) which necessarily implies, in my view, that its
liability may be less than the full guaranteed
amount. It thus seems
to me that the Department can make demands under the guarantee from
time to time subject to the (reducing)
limits specified in clause 2.
This makes it all the more important that the expression ‘right
of recovery’ in clause
3 should be understood as a right on the
part of the Department from Granbuild to recover a specific amount of
money, whether payable
during the subsistence of the contract or
following cancellation. The contractual machinery by which a right to
claim a specific
amount of money is established is the principal
agent’s interim or final payment certificate.
[55]
The provisions of
clause 5 of the guarantee do not warrant a different conclusion. That
clause recognises that from time to time
during the subsistence of
the contract Granbuild might become indebted to the Department in
terms of interim payment certificates,
whether because of adjustments
in the value of the works or recoveries in terms of clauses 33.1.
Pursuant to such interim certificates,
calls might be made on the
guarantee. (It should be emphasised that recoveries by the employer
in terms of clause 33.1 read with
clause 33.3 may arise during the
subsistence of the contract. They are not dependent on cancellation.)
Because payments pursuant
to interim certificates would be subject to
adjustment in the final payment certificate, there would need to be a
final accounting
between the Department and Compass. That is the
function of clause 5 of the guarantee. I accept that if the guarantee
in the present
case had entitled the Department to claim the full
guaranteed sum upon cancellation, clause 5 would also have operated
to require
a final accounting in such a case but that is no ground
for interpreting clause 3 of the guarantee as extending to cases not
reasonably
covered by its language.
[56]
I thus consider that
Granbuild’s second ground for an interdict must be upheld.
Locus
standi
[57]
Mr Jacobs submitted
that Granbuild did not have locus standi to seek the interdict
because it is not a party to the guarantee. I
disagree. In
Jacobs
en ʼn Ander v Waks en Andere
[1991] ZASCA 152
;
1992
(1) SA 521
(A) Botha JA said that locus standi is not a technical
concept with inflexible boundaries. It is common to speak of a direct
interest
in the requested relief or a real interest and not an
academic one. Whether an interest is sufficiently direct on the one
hand
or too far removed on the other depends on the particular facts
of each case, in regard to which no rule of general application
could
be laid down (at 534B-E).
[58]
Naturally Granbuild is
not entitled to object to payment by the guarantor merely because
there are contractual disputes between
the contractor and the
employer but one must not confuse locus standi with the grounds on
which a party in Granbuild’s position
may object to payment.
If, on a proper interpretation of the guarantee, the circumstances
entitling the employer to demand payment
and obliging the guarantor
to make it do not exist, the contractor has a clear interest in
interdicting payment, because the guarantor
will invariably have some
right of recovery against the contractor (here the
counter-indemnity). That this is an interest worthy
of protection by
way of an interdict has been taken for granted in a number of cases,
including by the Supreme Court of Appeal
in
Zanbuild
supra, where an interdict granted at
the instance of the contractor was upheld on appeal.
[6]
In the court a quo in
Zanbuild
Louw J stated in
para 2 of his judgment that the contractor’s locus standi had
correctly not been challenged.
[7]
Reference may also be made, by analogy, to cases dealing with
irrevocable documentary credits. The issuing bank is required to
make
payment to the beneficiary upon presentation of the documents
specified in the credit unless the beneficiary’s demand
is
fraudulent. It is recognised that the bank’s customer
(typically a purchaser of goods in an international sale) may
interdict
payment if the beneficiary makes a fraudulent demand (see
Loomcraft Fabrics CC
v Nedbank Ltd & Another
[1995] ZASCA 127
;
1996
(1) SA 812
(SCA)). Fraud is, in such cases, the ground for the
interdict, not the basis of locus standi. The standing of the bank’s
customer in such a case must derive from its recognised financial
interest in preventing payment of the credit contrary to the bank’s
legal obligation.
[59]
Furthermore, a
construction guarantee is normally furnished pursuant to the terms of
a building contract. The contractor has a direct
contractual right
against the employer to prevent the latter from making demand under
the guarantee contrary to the terms of the
building contract. As will
be apparent from my analysis of Granbuild’s second ground for
an interdict, the building contract
in this particular instance
envisaged a guarantee in wider terms than the one actually furnished,
indeed on terms which would have
entitled the Department to call up
the guarantee forthwith upon cancellation without waiting for a final
payment certificate. Nevertheless,
there can be no doubt that the
guarantee issued by Compass was procured by Granbuild pursuant to its
obligations under clause 14
of the building contract as read with the
schedule and that the terms of the guarantee, to the extent that they
differed from those
envisaged by the building contract (as they did,
for example, in regard to the amount of the guarantee), were as
between Granbuild
and the Department regarded by the latter as
acceptable. In terms of clause 14.3.4 as read with 33.3 the
Department had the right
to make written demand in terms of the
guarantee if there was a ‘right of recovery’ in terms of
payment certificate.
The guarantee which the Department accepted in
discharge of Granbuild’s obligation to procure a guarantee did
not include
the additional right, envisaged by clause 33.6 of the
standard JBCC terms, to make demand merely because the contract had
been
cancelled.
[60]
One knows in the
present case that if Compass were to make payment to the Department,
Granbuild would be liable to Compass in terms
of the
counter-indemnity. It is true that in terms of the counter-indemnity
Compass is entitled to make payment even though Granbuild
disputes
the validity or amount of the Department’s claim. This does not
appear to me to disbar Granbuild from disputing
that the
circumstances entitling the Department to make demand under the
guarantee have been met; what it precludes Granbuild from
doing is
refusing to make good on its counter-indemnity merely because there
is a contractual dispute between itself and the Department
on the
underlying merits of the claim, something which is usually irrelevant
as between the employer and the guarantor. It is also
so that Compass
is entitled in its discretion to pay the Department to obtain its
release but Compass has not claimed in these
proceedings that it
wishes in its discretion to obtain its release and it is thus
unnecessary to consider the scope of that provision.
[61]
I thus find that
Granbuild has locus standi to seek an interdict.
Conclusion
[62]
It follows that
Granbuild is entitled to a final interdict. This does not mean that
the Department will never be entitled to demand
payment of the
guarantee. It means only that the Department was not entitled to make
demand for payment in its letter of 10 March
2015. The effect of this
judgment is that it will only be entitled so to do once the principal
agent has certified an amount as
owing by Granbuild to the Department
in terms of clause 36.5.3 read with clause 33.3.
[63]
Mr Jacobs, who
submitted (contrary to my conclusion) that I should dismiss the
application, asked for a special costs order against
Granbuild
because of a statement made by Mr Donough in the founding affidavit
that the Department’s conduct in calling up
the guarantee with
knowledge of the pending application for leave to appeal was
‘tantamount to fraud, is in bad faith and
is unjust’.
This was effectively an allegation directed at the senior official of
the Department who signed the demand, Mr
Gibbs. In his answering
affidavit Mr Gibbs stated that these allegations were reckless and
would be dealt with in argument. Mr
Donough denied this in reply. The
imputation of fraud and bad faith was not retracted.
[64]
In my view Mr Donough’s
imputations against Mr Gibbs were completely unjustified. Indeed, I
have rejected Granbuild’s
first ground for an interdict, which
is the only ground to which the pending application for leave to
appeal might have been relevant.
If I had dismissed the application
on its merits, I might well have acceded to Mr Jacobs’s request
for a special costs order.
In the event, I will be granting an
interdict, but as a mark of the court’s displeasure, and having
regard to the fact that
Granbuild has only succeeded on one of two
distinct issues and obtained what is likely to be a relatively brief
respite, I intend
to order that the parties pay their own costs.
[65]
I make the following
order:
(a) The second respondent is interdicted and restrained
from making payment to the first respondent pursuant to the first
respondent’s
demand to the second respondent dated 10 March
2015 for payment of the amount of the guarantee issued by the second
respondent
to the first respondent on 9 February 2012.
(b)
The parties shall bear their own costs of the application.
ROGERS J
APPEARANCES
For Applicant Messrs MJ Fitzgerald SC and N Traverso
Instructed by NSW Attorneys
1 Sohland Avenue
Constantia
For First Respondent Mr DJ Jacobs SC and Ms Z
Cornelissen
Instructed by The State Attorney
4th Floor, 22 Long Street
Cape Town
[1]
This is on the basis that
clause
41, which varies certain of the standard provisions where the
employer is an organ of State, is not applicable in the present
case. One of the rectifications granted by Schippers J was that
clause 41 did not apply. If clause 41 had applied, the seven-day
period would have been substituted with a 21-day period.
[2]
The rest of clause 5 of the guarantee in
Federated Insurance
was
not quoted in the judgment because it was not relevant. In all
likelihood that it regulated the calling up of the guarantee
on the
other grounds mentioned in clause 33.6 of the JBCC contract, namely
sequestration, liquidation etc.
[3]
Although the terms of the guarantee are not
quoted in Gauntlett AJ’s judgment, I have examined the court
file to ascertain
its terms. It may also be noted that the building
contract was, as in the present case, the JBCC contract (4
th
edition).
[4]
In
Petric
clause 4 of the guarantee is not quoted but one
can infer from clause 6.0 that clause 4 made provision for demand to
be made under
the guarantee if there was an amount certified for
payment. Clause 5, which is quoted in the judgment, deals with the
calling
up of the guarantee upon cancellation.
[5]
Para 82.2 record 150.
[6]
For other recent cases to similar effect, see,
for example,
KNS Construction (Pty) Ltd
v Genesis on Fairmont & Another
[2009]
ZAGPJHC 39 paras 12-16 (where the question of standing was
specifically discussed) and
Group 5
Construction (Pty) Ltd & Others v MEC for Public Transport Roads
and Works Gauteng & Others
[2015]
ZAGPJHC 55.
[7]
The judgment is not reported and is not on SAFLII
but I have obtained a copy from the court file.