Contract cancellation – construction agreement
In construction contracts generally, barring allegations that fraud has taken place, contractors are not allowed to challenge payment guarantees even when if there is a dispute in terms of the building contract. The Courts will however take note of any underlying contracts which may exist.
Written by: Adriaan Jean Vermaas (B. Com Law, L.L.B, L.L.M); source: https://www.lexisnexis.co.za/
Joint Venture Between Aveng (Africa) Pty Ltd and Strabag International GmbH v South African National Roads Agency SOC Ltd and another JOL 41800 (GP)
Case Number: 8331 / 19
Judgment Date: 22 / 03 / 2019
Country: South Africa
Jurisdiction: High Court
Division: Gauteng, Pretoria
Bench: TAN Makhuvele J
Keywords: Construction – Construction agreement – Cancellation by contractor – Performance guarantees – Presentation for payment – Application for interdict
The applicant (ASJV) had been awarded a tender by the first respondent (SANRAL), for the building of a bridge. The parties entered into a construction contract in that regard, ASJV was required to provide SANRAL with guarantees for proper performance of the works as well as for rectifying any defects on the works actually executed. These are known as performance and retention money guarantees. The undertaking in respect of the guarantees was made by the second respondent (“Lombard”).
Having cancelled the contract, ASJV sought to interdict payment by Lombard under a performance guarantee, on the basis that SANRAL first had to comply with the terms of the building contract before it could present the guarantees for payment.
Held that the legal position in South Africa is that in the absence of allegations of fraud, the contractor is not entitled to challenge payment of construction guarantees, even where there are contractual disputes in terms of the building contract. Our courts are not oblivious of the relevance of the underlying agreement between the employer and the contractor and the effect that it may have on the rights of the former should it seek to make a claim against the guarantees.
In this case, the validity of the applicant’s cancellation of the contract was critical. The grounds for cancellation were related to force majeure, but the court found that the facts did not establish the existence of force majeure. The cancellation of the contract had no legal basis and SANRAL was justified in regarding ASJV’s actions as a repudiation. That would justify its presenting the guarantees for payment.
The application was dismissed with costs.