Kristabel Developments (Pty) Ltd v Credit Guarantee Insurance Corporation of Africa Limited

• Jurisdiction: South Africa
• Judge: Satchwell J
• Judgment Date: 20 October 2015
• Docket Number: 23125/2014
• Court: Gauteng Local Division, Johannesburg
• Hearing Date: 07 October 2015
• Citation: 2015 JDR 2633 (GJ)

Satchwell J:

INTRODUCTION

1.

Applicant, who was the employer in a JBCC contract and the beneficiary under a performance guarantee, has claimed the sum of R 12 438 671, 61 premised on a credit guarantee also named the construction guarantee ('the guarantee'). The respondent, the guarantor, has opposed this application firstly, on the grounds of a claimed subsequent agreement of settlement which is alleged to have novated that earlier credit guarantee and secondly, on the grounds of claimed non-compliance with the terms of the guarantee.

2

It seems to me that it is the facts of the matter which are determinative of both issues. Accordingly, I set out the chronology of events which give rise to the disputes before this court. In the main, this is based upon a series of emails between the respective parties' attorneys and for clarity I shall only indicate the sender thereof.

a.

Respondent issued the credit guarantee (31st October 2012).

b.

Applicant cancelled the contract with the contractor third party (on 30th April 2014).

c.

Applicant emailed a copy of the letter of cancellation to the respondent of which receipt was acknowledged (20th May 2014).

d

Applicant sent a letter of demand to respondent (4th June 2014).

e

Applicant launched motion court proceedings against respondent claiming payment under the guarantee (26th June 2014).

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f.

Applicant's attorneys advised that he was instructed that 'our clients met yesterday and have agreed to resolve the matter" on certain terms. (1st August 2014).

g

Respondent's attorneys stated that "I confirm that my client is in agreement with the agreement as you have recorded it in your email below" and advising "I agree that we need to make the mechanism whereby monies are released from the ENS Trust Account, a workable one, given that there may be a disagreement between our client's respective quantity surveyors, in relation to measurement figures. (8th August 2014).

h.

Applicant's attorneys confirmed payment of the sum into the trust account, asking whom has been appointed as respondent's quantity surveyor and asking respondent's attorneys to "forward to me your proposals on the assessment mechanism, as mentioned in your last email to me". (15th August 2014).

i

Further correspondence advised details of the respective QS.

j

Respondent's attorneys emailed that he would be "forwarding to you my proposal on the assessment mechanism" and asking whether or not a status report had been drawn up 'at the time of cancellation' and if not, was there 'any record of the status of the works at the time of the cancellation.' (18th August 2014).

k

Further correspondence recorded that the QS had exchanged documentation and were going through documents.

l

Respondent's attorneys emailed that, he would clarify issues with respondents QS, "where after I will be in a position to draw a draft agreement, which I will then send to you." (4th September 2014).

m

There was and continued to be correspondence as to respondent's payment of the monies claimed into their attorneys trust account.

n

Applicant's attorneys emailed that "all of the information forwarded to you by our client was obviously done so as part of the without prejudice engagement taking place between our clients. That being so, please can you come back to me urgently on the finalization of the matter?" (26th September 2014).

o

Applicant's attorneys emailed regarding hoarding provisions and interest claims and stating "I am instructed to record that our client demands your client's overall settlement proposal we [be] forwarded by close of business today." (31st October 2014).

p

Applicant's attorneys emailed advising of applicant's banking details and asking "please will you confirm with me as soon as payment has been made and also the exact amount." (3rd November 2014).

q

Respondent's attorneys advised that "the amount is R 6 060 405.22" (3rd November 2014).

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r

Applicant's attorneys emailed that applicant "confirms receipt of R 6 060, 405.22 which it accepts on account and without prejudice to its rights regarding the claim for payment of the balance of the guaranteed amount." and asking for "1. A breakdown of how your client calculated the amount which was paid to our client; and 2. In respect of amounts which were claimed by our client and not paid by your client, your client's reasoning therefor." (11th November 2014).

s

Applicant's attorneys advised that applicant "1. Is no longer prepared to delay this matter any further; 2. Will shortly be issuing summons against your client claiming payment of the balance of the guaranteed amount; and 3. Accordingly withdraws the application under Johannesburg High Court case number 23125/2014, with full reservation of its rights to claim the costs of that application in the action mentioned above." (the date is not set out in the email but it apparently follows on from one from respondent's attorneys dated 19th November).

t

Respondent's attorneys advised of "certain aspects… that are of remaining concern" i.e. those pertaining to hoarding charges and the finance costs and that "my client has made a payment, but that payment is not made in full and final settlement of any particular heads of claim/components thereof. In the circumstances clause 7 of the guarantee remains of application relative to the amounts claimed." (5th December 2014). [1]

u

Respondent's attorneys emailed that the earlier email that day "was also necessarily sent in a without prejudice context and the payment made also in a without prejudice context, and without admission of liability, as also entirely [without] prejudice to all our client's rights including its right in terms of clause 7 of the guarantee." (5th December 2014).

v

Applicant's attorneys responded that applicant does not intend supplementing its founding affidavit and requires respondent to file its answering affidavit by 23rd January 2015. (11th December 2014).

NOVATION

3

Applicant maintains that it sues upon the credit guarantee whilst respondent maintains that there was a subsequent agreement which has novated that guarantee. Applicant submits that, at most, there were certain proposals to resolve the dispute and an ongoing attempt to resolve the matter which foundered upon the mechanism of resolution. Respondent contends that the matter was settled either

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when the clients "agreed to resolve the matter" on specified terms on or by first August 2014 or when respondent's attorneys confirmed "my client is in agreement with the agreement as you have recorded it" on 8th August 2014. In other words, respondent submits that there was either an agreement reached by 1st August or there was an offer on that date which was accepted on 8th August.

4

The relevant portions of the two documents read as follows:

The Credit Guarantee – clause 5

"Subject to the Guarantor's maximum liability referred to in 1.0 or 2.0 , the Guarantor undertakes to pay the Employer the Guaranteed Sum or the full outstanding balance upon receipt of a first written demand from the Employer to the Guarantor at the Guarantors physical address calling up this Construction Guarantee….". The Guaranteed Sum is defined to mean "the maximum aggregate amount of R 20 731 119.36".

Email of 1st August 2014

"Our clients have agreed to resolve the matter on the following basis:

i

"Our client will deliver the original guarantee to your client;

ii

Your client will then pay the amount demanded by our client into your firm's trust account;

iii

Our clients QS [quantity surveyor] and one appointed by your client will then assess the further costs incurred since the guarantee was called, together with any additional costs to be incurred and your firm will then pay our client, out of the funds held, on receipt of an instruction to that effect."

5

I am unable to find, on the facts before me, that there has been an agreement in August 2014 which novated the earlier credit guarantee of 31st October 2012. It is my view that this conclusion emerges from the correspondence in which it is sought to found the novating agreement.

6

First, the terms or basis upon which it was advised on 1st August that the clients had met and agreed to resolve the matter are uncertain, incomplete and apparently incapable of being finalized. There is no doubt that the first two of these terms are easily determinable and capable of being enforced. It is simple enough to see whether or not the guarantee has been delivered and to demand same. Equally it is not difficult to check if funds have or have not been paid into an attorney's trust account and to demand that same be done.

7

However, it is the third term which is without certainty, gives no indication of how resolution is to be achieved and is no more than a provisional attempt to resolve the dispute. Regrettably, this term omits to identify anything more than an attempt at a

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mechanism to resolve the dispute which is already the subject matter of litigation – payment of R 12 million pursuant to a credit guarantee. What is agreed between the parties (in their emails of 1st and 8th August) is that each party will appoint a quantity surveyor, each of which will assess costs incurred and additional costs and then applicant will be paid "on receipt of an instruction to that effect". Who is "to give an instruction" is not identified especially when there are two quantity surveyors involved and neither has a veto over the other? What amount is to be paid cannot be specified because no one has yet determined an amount and no one has the independent power so to do?

8

In the course of argument I was referred to Christie who wrote that it is "…not uncommon for parties to...