Sulzer Pumps (South Africa) (Proprietary) Limited v Covec-MC Joint Venture

• Jurisdiction: South Africa
• Judge: Jansen J
• Judgment Date: 01 April 2014
• Docket Number: 1672/2013
• Hearing Date: 01 March 2014
• Court: Gauteng Division, Pretoria

Jansen J:

[1]

This application has been divided into two parts: a part A and a part B.

[2]

The relief sought in part A, namely an interim interdict, was brought on approximately two hours' notice to the respondent, in the Gauteng division of the High Court, and not the Gauteng local division of the High Court which would have made more sense, given the fact that the attorneys are based in Johannesburg.

[3]

The resolution to bring the urgent application was dated 14 February 2013 but it was argued, from the bar, without instructions, that it was only signed on 19 February 2013. This "fact" was never confirmed on oath.

[4]

It would appear to have been well nigh impossible for the applicant to generate 83 pages of a founding affidavit in two hours, although the applicant contends that that is what happened. The explanation proffered is that the legal representatives of the applicant were very well acquainted with the facts due to negotiations which had preceded the launch of the application. The respondent received the urgent application via e-mail at 12h02, without annexures, in Sandton at Werksmans attorneys' office, and was called upon to be at court at 14h00 in Pretoria on the same day.

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[5]

The urgent application was preceded by the following events: -

[5.1]

On 16 January 2013 the respondent once again extended the performance guarantee, the interpretation of which forms the subject matter of this application, for a year, once again reiterating that it did not have any impact on the respondent's rights.

[5.2]

The parties, by agreement, extended the expiry date of the guarantee to 11 February 2013 and again to 18 February 2013 because of confidential discussions pertaining to arbitration proceedings. By way of an additional affidavit introduced by the applicant, it transpired that the performance guarantee had, in fact, already been extended until 28 February 2015, and that the parties had lost sight of this fact.

[5.3]

Hence the applicant, on the information it relied upon at that time, knew that the performance guarantee would have lapsed on 14 January 2013 (absent the further letters of extension referred to below). It was also aware of the further indulgences. It would seem as though the applicant prepared its urgent application intentionally or due to negligence at the last minute, leaving the respondent no time to file an answering affidavit. Such conduct, prima facie, warrants a costs order on an attorney and own client basis.

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[5.4]

The applicant applied, on an urgent basis, for an interim interdict, which was granted, prohibiting the respondent from proceeding to call up a performance guarantee, held by Nedbank Limited. The costs of the urgent application were reserved. The respondent had already requested Nedbank Limited to call up the performance guarantee and the interdict nipped the applicant's request to Nedbank Limited in the bud. On the return day, when this application was heard, it sought a final interdict against the respondent prohibiting it to call up the performance guarantee.

[6]

I pause here to state that it is incorrect to refer to an interdict when an agreement is sought to be enforced. As stated by Christie The Law of Contract South Africa LexisNexis, 6th Edition at pages 555-556:-

"One way of breaching a contract is by doing something expressly or impliedly forbidden by the contract or inconsistent with the obligations imposed by the contract. A plaintiff who asks for an interdict to prohibit such a breach is in reality asking for specific performance in the negative form of non-performance of the forbidden or inconsistent act to ensure performance of the contract. His entitlement to an interdict, subject only to the court's discretion, is therefore as unquestionable as in the case of a plaintiff who seeks specific performance in the positive form. Especially, his entitlement is not subject to the requisites for an application for an interdict set out by Van der Linden 31 4 7."

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[7]

However, the court may consider the inadequacy or otherwise of damages in exercising its discretion.

[8]

Although this principle was not argued by either of the parties, it is trite.

[9]

The parties are involved in arbitration proceedings regarding an alleged breach of the construction agreement by the respondent and it is the applicant's case that the parties agreed on or about 29 November 2010 that the performance guarantee would not be called up pending such arbitration proceedings. Allegedly, in breach of this agreement, the respondent called up the performance guarantee on 17 January 2013 and handed over the original documentation to Nedbank Limited on 19 February 2013 in order to receive payment of the guarantee amount. Hence, so it was alleged, the need to approach the court as a matter of alleged critical urgency.

[10]

The rationale for the performance guarantee is of relevance. The respondent contracted with the applicant to perform certain work for and on behalf of the respondent in respect of the Vaal River Eastern Subsystem Augmentation Project ("the construction agreement").

[11]

The applicant at the outset provided the respondent with a performance guarantee in respect of the construction agreement, which was renewed on an annual basis. This fact is of importance. The applicant alleges that the respondent's entitlements to the fruits of the performance agreement were

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agreed between the parties to be dependent on the outcome of arbitration proceedings which have not been finalised. The existence of such an agreement is vehemently disputed by the respondent which alleges that no agreement has been properly pleaded as required by rule 18 of the Uniform Rules of Court; and that no such agreement exists.

[12]

This contention is inaccurate on the respondent's own version. Clearly an agreement was reached by the parties in terms of the correspondence exchanged between them, which correspondence is self-explanatory, properly dated and signed by the parties' representatives. In fact, in its answering affidavit, after denying the existence of the agreement, the respondent admits the existence of the agreement, and even stipulates the terms thereof. It can therefore be accepted that the applicant and the respondent indeed entered into an agreement and that the denial of the existence of the agreement is without merit. One could still have understood the denial of the existence of an agreement had the respondent argued, for example, that there had been no consensus ad idem. However, this was not the respondent's defence. Its defence was one of the interpretation of the contract and whether the agreement between the applicant and the respondent had any bearing on the performance guarantee.

[13]

It follows, on the applicant's argument, that the performance guarantee can only be called up once the dispute regarding the applicant's alleged breach of

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the performance agreement by the respondent has been resolved by way of the arbitration route.

[14]

That it was in the contemplation of the parties that the arbitration proceedings would be finalised during or about 2012 is apparent from the applicant's and the respondent's affidavits. Initially, the thought was to extend the performance guarantee for an indefinite period, but the bank insisted on a date being inserted.

[15]

In contrast to the respondent, the applicant alleges that the term of the alleged agreement, entered into on or about 29 November 2010, was that the expiry date of the performance guarantee was to be postponed, on an annual basis, to expire on the final determination of the issues to be arbitrated upon by the parties. However, the respondent draws a distinction between "the extension" and "the calling up" of the performance guarantee. Hence, there are no disputes of facts between the parties. The real dispute relates to the interpretation of the contract entered into between the parties, which can be resolved on the written documents.

The proper construction to be placed on the performance guarantee

[16]

For purposes of the judgment, the terms of the bank guarantee are important. Paragraph 3 thereof is of cardinal importance and is quoted in full: -

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"3.

Payment shall be made to the Employer on receipt by the Bank, at the Bank's domicilium citandi et executandi of the Employer's first written demand and which written demand shall be accompanied by this original guarantee as well as the following:

3.1

Written confirmation, signed by the employer, stating that the Contractor is in breach of any contract in terms of which this guarantee was required, or that any event triggering payment in terms of this guarantee has occurred;

3.2

Written confirmation, signed by the Employer, of the amount being claimed in both figures and words, with such amount not to exceed the maximum amount of this guarantee." [emphasis added]

[17]

Clearly at all relevant times to the extension of the guarantee letter, the respondent had been in a position to state that the applicant (contractor) was in a breach of the underlying construction agreement (not appended to the papers).

[18]

Also of importance is clause 5 thereof and which reads as follows: -

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"This guarantee is personal to the Employer and is neither negotiable nor transferable, and must be returned to the Bank upon payment, withdrawal or expiry."

[19]

The applicant contends that Nedbank Limited, as the guarantor, is an independent contractor of the respondent. This raises the question whether Nedbank Limited should have been joined in these proceedings - a point taken by the respondent.

[20]

In the very first letter written by the...