Supreme Court of Appeals ruling in favour of SANRAL

The appeal to prevent the South African National Roads Agency SOC Limited (SANRAL) to claim guarantees from the joint venture that stopped work on the Mtentu bridge project in 2019 has been dismissed by the Supreme Court of Appeals (SCA).

The judgment between Aveng Strabag (Africa) (Pty) and Strabag International GmbH (ASJV) vs SANRAL was handed down electronically by circulation to the parties’ representatives on Friday, 13 November.

“We are happy that the court has dismissed the appeal with costs. Our position that there was no Force Majeure, and as the contractor refused to return to site after the suspension of works was lifted we had no option but to terminate for abandonment of the project,” said Craig Mc Lachlan, SANRAL’s N2 Wild Coast Road lead project manager.

SANRAL will now proceed with calling in both the performance and retention guarantees to help cover the additional costs that will be incurred to complete the project with a new contractor. “The contractor and not the taxpayer should be held liable for all additional costs,” said Craig McLachlan

SANRAL had advertised the re-tender for the construction of the Mtentu River Bridge and associated roads on the N2WCR project. The re-tender closes on Friday, 19 February 2021.

According to court documents, at the heart of this appeal was whether SANRAL was restricted by the underlying contract between it and the joint venture ASJV from demanding payment in terms of a performance guarantee issued in its favour by the second respondent, Lombard Insurance Company Ltd. The guarantee was issued pursuant to a written construction contract, concluded between SANRAL and the ASJV in August 2017, for the construction of the Mtentu River Bridge on the N2WCR.

In 2019 both SANRAL and ASJV purported to terminate the contract. The following circumstances led to the termination of the contract.

From 22 October 2018 there were disruptions of the works by some members of the local community. The community raised a wide variety of demands including employment issues (split of labour between different villages, hiring of local semi-skilled labour who had failed assessments, wages, additional job opportunities), prioritisation of SMMEs from immediately adjacent to the project, disbanding the Project Liaison Committee, removal of certain persons linked to the contract and the  use of a local quarry to supply aggregate. Some of the disruptions took a violent turn and threats were made potentially endangered ASJV staff and workers. The engineer, acting on SANRAL’s instructions, suspended the works between 22 October 2018 and 13 January 2019. After agreement was obtained from all stakeholders on 08 January 2019 for work to resume without disruption the suspension was lifted.

Against this backdrop, the joint venture, on 30 January 2019, gave SANRAL a notice purporting to terminate the contract, effective seven days after the notice. The ASJV stated that the civil unrest and commotion at the site constituted force majeure which had prevented it from performing the works for a continuous period of 84 days. Having given notice of termination, the ASJV considered itself entitled to be released from further performance of its obligations under the contract.

SANRAL denied the existence of the force majeure and asserted that, if it ever existed, it had to come to an end on 9 January 2019 following a meeting with the local community. It had communicated this to the ASJV and instructed it to resume the works on 14 January 2019, which it refused to do. Accordingly, SANRAL contested the ASJV’s entitlement to terminate the contract. It gave the ASJV until 4 February 2019 to withdraw its notice of termination and to return to site, failing which SANRAL would itself exercise its right to terminate the contract.

On 5 February 2019, after the ASJV had still failed to return to site, SANRAL terminated the contract. The dispute as to whether the disruptions at the construction site consituted force majeure, which entitled the ASJV to terminate the contract, was referrred to artibration.

In the wake of the second purported termination of the contract, the ASJV sought SANRAL’s assurance that, pending the arbitration proceedings, it would not call up the guarantee. SANRAL not only declined to give such assurance but notified the JV of its intention to do so. As a result, the ASJV applied to the Gauteng Division of the High Court, Pretoria, for an interlocutory interdict, restraining SANRAL from calling up the guarantee, pending the outcome of the arbitration proceedings. The ASJV asserted that SANRAL’s call on the guarantee would be unlawful, as it had not met certain conditions in the underlying contract which limited its rights to call up the guarantee. ASJV lost this initiall case but subsequently were granted leave to appeal to the SCA. The case was heard by the SCA on 14 September 2020.

In court papers Judge TM Magoka said that the ASJV has failed to show that SANRAL was not entitled to payment of the guarantee before any underlying dispute between them is determined. Accordingly, the appeal must fail.  The appeal was dismissed with costs, including the costs of two counsel.