Kwikspace Modular Buildings Ltd v Sabodala Mining Co Sarl and Another

• Jurisdiction: South Africa
• Judge: Cloete JA, Lewis JA, Shongwe JA, Griesel AJA and Theron AJA
• Judgment Date: 18 March 2010
• Citation: 2010 (6) SA 477 (SCA)
• Docket Number: 173/09
• Hearing Date: 23 February 2010
• Counsel: PHJ van Vuuren for the appellant. AJ Daniels for the first respondent.
• Court: Supreme Court of Appeal

Cloete JA (Lewis JA, Shongwe JA, Griesel AJA and Theron AJA concurring):

[1] The present appeal concerns the right of a building contractor to B interdict the other party with whom it contracted for the performance of the building works, from presenting a performance guarantee unconditional in its terms and furnished by a financial institution to the other party.

[2] On or about 30 December 2006 Kwikspace Modular Buildings Ltd, C a South African company, which is the appellant in these proceedings and to which I shall refer as the contractor, entered into a written contract with Sabodala Mining Co SARL, a company incorporated in terms of the laws of Senegal, which is the first respondent in these proceedings and to which (taking my cue from the contract between the D parties) I shall refer as the principal. The contract was for the supply and installation of an accommodation village at the Sabodala Gold Project Site in Senegal. The contract documents comprised a formal instrument of agreement; the special conditions of contract (SCs) and appendix A thereto (the site-specific conditions); the general conditions of contract (GCs), being the Australian Standard General Conditions of Contract E AS 2124 - 1992, and annexures thereto; the contract schedules; the contract specification (Scope of Work); appendices, and drawings (to take precedence in that order). GC 23 provided that the principal was obliged to ensure that at all times there was a superintendent and GC 24 made provision for the appointment by the superintendent of representatives to F exercise any of the functions of the superintendent under the contract. Annexure A to the GCs provided that the law applicable to the contract would be that of the state of Western Australia.

[3] The appeal turns on the interrelationship of GC 5 and the guarantees provided pursuant thereto. It is necessary to quote extensively from both. G GC 5 dealt with security, retention moneys and performance undertakings. It provided inter alia (amended as aforesaid), as follows:

'5.1

Purpose

Security, retention moneys and performance undertakings are for the purpose of ensuring the due and proper performance of the Contract.

. . . H

5.3

Form of security

The security shall be in the form of cash or an approved unconditional irrevocable undertaking given by an approved financial institution. The costs (including stamp duty and other taxes) of and incidental to the provision of the security shall be borne by the party providing the I security.

The party having the benefit of the security shall have the discretion to approve or disapprove the form of an unconditional undertaking from the financial institution giving the undertaking. The form of unconditional undertaking attached as Attachment 1 to the General Conditions of Contract is approved. J

Cloete JA

A . . .

5.5

Recourse to retention moneys and conversion of security

A party may have recourse to retention moneys and/or cash security and/or may convert into money security that does not consist of money where -

(a)

the party has become entitled to exercise a right under the B Contract in respect of the retention moneys and/or security; and

(b)

the party has given the other party notice in writing for the period stated in the annexure [which was two days] of the party's intention to have recourse to the retention moneys and/or cash security and/or to convert the security; and

(c)

the period stated in the annexure [two days] has or have elapsed C since the notice was given.'

[4] Two performance guarantees, each in identical terms (save for their numbers and that one was dated 28 March 2007, and the other 2 April 2007) and each for a maximum amount of R2 651 254, were issued by Nedbank Ltd, a well-known South African bank (which was cited as the D second respondent in this appeal and in the court below, but which took no part in the proceedings in either court). The undertaking attached to the GCs was not used. In terms of the guarantees issued the bank bound itself to the principal for the due performance by the contractor of all the contractor's obligations in terms of the contract -

E 'and for the payment of all damages or other amounts including interest due by the contractor to the principal whether in terms of the contract or consequent upon determination thereof, and also all charges and expenses of whatsoever nature, including, but without derogating from the generality of the aforesaid attorney and client legal costs incurred by the principal in endeavouring to secure fulfilment of the obligations.'

F There were 13 further clauses in the performance guarantees, of which the following are relevant for present purposes:

'2.

The principal shall have the absolute right to arrange his affairs with the contractor in any manner he deems fit and without advising the bank, and the bank shall not have the right to claim G release on account of conduct alleged to be prejudicial to the bank. Without derogation from the generality of the foregoing, no compromise, extension of time, indulgence, release, waiver of security, release of co-sureties or variation of the contractor's obligation shall, in any manner, affect the bank's liability under this guarantee.

3.

H The bank undertakes to be bound to effect payment of the above-mentioned amount, or any lesser portion thereof, to the principal upon receipt by the bank at the abovestated address of the principal's first written demand that the contractor has committed a breach of the contract and/or has defaulted thereunder and/or has been provisionally or finally sequestrated or liquidated or placed under judicial management.

4.

I The bank shall be bound by any admission of liability by the contractor and by an award or judgment in arbitration proceedings or litigation between the principal and the contractor.

. . .

7.

Notwithstanding anything to the contrary contained herein, the J bank's obligations hereunder shall be construed as principal and

Cloete JA

not as accessory to the obligations of the contractor and compliance A with any demand for payment received by the bank in terms hereof shall not be delayed, nor shall the bank's obligations in terms hereof be discharged, by the fact that a dispute may exist between the contractor and the principal.

. . .

13.

This guarantee shall be governed by South African law and subject B to the jurisdiction of South African courts.'

[5] Various disputes arose between the parties during the performance of the contract. Matters came to a head when on Friday afternoon, 24 October 2008, the principal sent a notice to the contractor in the following terms: C

'Sabodala Gold Project

Contract No 1519/520 - Supply & Installation of Accommodation Village

Notice of Conversion of Security D

Notice is hereby given under clause 5.5 of the General Conditions of Contract of the principal's intention to convert into money the security (Performance Guarantees No 288/27805905 and 288/27918718) lodged by the contractor under the Contract.'

A request addressed on behalf of the contractor to the principal's E attorney, for an undertaking that the guarantees would not be presented to the bank prior to an urgent application for an interdict preventing such presentation, was refused. The contractor then approached the Johannesburg High Court as a matter of urgency for such an interim interdict pending an application for a final interdict. An interim interdict was granted by consent by Victor J on Monday 27 October 2008, that F (apart from providing for dates for filing of further affidavits) interdicted the principal 'from presenting a first written demand for payment for any amounts in terms of the performance guarantees and from claiming or receiving payment from' the bank 'in terms of the guarantees or pursuant to the presentation thereof', and interdicted the bank from G making any payments to the principal pursuant to the guarantees - all pending the outcome of the contractor's application for final relief. The final relief was refused by the same learned judge on 18 December 2008, but leave to appeal to this court was subsequently granted by her. Makhanya J thereafter issued an interdict in the same terms as the H interim interdict save that the relief granted was pending the finalisation of all appeals. This appeal is against the order of Victor J refusing a final interdict.

[6] The argument on behalf of the contractor before this court involved three propositions: (1) that the underlying building contract between the I contractor and the principal could, as a matter of law, qualify the right of the principal to present the guarantees for payment to the bank, despite the unconditional wording of the guarantees; (2) that the building contract did indeed contain such a qualification, in particular, in GC 5.5(a); and (3) that GC 5.5 contained a tacit term so that GC 5.5(b) should be read as follows: J

Cloete JA

A 'The party has given the other party notice in writing for the period stated in the annexure [two days] of the party's intention to have recourse to the retention moneys and/or cash security and/or to convert the security, setting out the grounds on which the demand will be made.' (Emphasis added.)

B [7] Counsel on both sides were content to submit that there is a presumption [1] that the law of a foreign state is, in the absence of evidence to the contrary, presumed to be the same as the law of South Africa. [2] But as I believe the law in Australia on the points in issue in this appeal can be ascertained readily and with sufficient certainty, as contemplated in C s 1(1) of the Law of Evidence Amendment Act 45 of 1988, [3] I propose applying Australian law to the interpretation of the building contract and in particular, GC 5. The High Court of...