Supreme Court rules in favour of Sanral after contractors claim force majeure

The Supreme Court of Appeal (SCA) last week ruled in favour of Sanral, after contractors declared a force majeure event and downed tools on the R1.63 billion Mtentu bridge project on the Wild Coast in 2019, and refused to return to work as a result of disruptions involving local communities that turned violent.

The contractors – a joint venture comprising Aveng and Strabag International (ASJV) – claimed force majeure and subsequently terminated the bridge-building contract with Sanral in 2019, after members of the local community disrupted construction works with a list of demands, which included making use of local labour, the removal of certain people linked to the project and the use of a local quarry to supply aggregate.

Some of the disruptions took a violent turn and threats were made against staff. Sanral decided to suspend the works between October 22, 2018, and January 13, 2019, at which point the contractors were expected to return to work.

Instead, the joint venture gave notice to Sanral that it was terminating the contract, claiming 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. This would have released the contractors from further performance of their obligations under the contract.

Sanral rejected the claim of force majeure or, saying if it did exist, it ended on January 9, 2019, following a meeting with the local community which seemed to resolve matters. It instructed the joint venture to resume works on January 14, 2019, which the ASJV refused to do. Sanral contested the joint venture’s entitlement to cancel the contract and gave it until February 4, 2019 to withdraw its notice of termination and return to site, failing which Sanral would exercise its right to terminate the contract.

The matter was referred to adjudication, but before the adjudication committee met, ASJV applied to the Pretoria High Court for an ‘interlocutory order’ (a temporary order) to stop Sanral from calling up guarantees that protect developers from non-fulfilment of agreed performance standards. Also under dispute is a retention guarantee, where developers retain about 10% of any invoice presented by a contractor to ensure any defects are remedied once construction work is completed.

The quantum of funds to be claimed under these guarantees has yet to be argued, which means the dispute is likely far from over.

The Pretoria High Court ruled against the JV, which then took the matter on appeal to the SCA in Bloemfontein.

In a statement, Sanral’s N2 Wild Coast Road lead project manager Craig McLachlan says the roads agency is happy with the SCA ruling, and that its position remains that “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.”

In response to questions from Moneyweb, Sanral says the tender for the completion of the construction of Mtentu bridge is out and the tender closing date is February 19, 2021.

“The award of the new contract is expected in Mid-2021. It is anticipated that the bridge will be completed in 2025.”

Responding in a statement to the SCA ruling, Aveng says the joint venture has been engaged in two separate litigious matters against Sanral over the last 18 months.

“The ASJV remains confident that its decision to terminate the contract was both contractually valid and also the right thing to do in the circumstances faced at Mtentu, particularly in light of the well-publicised and persistent indications (including in the reissued request for tenders for the bridge works) that the underlying issues that brought about the unrest, as well as the communities’ resolve in relation to their grievances, had not abated at the time of termination.”

Though the SCA ruled in favour of Sanral, Aveng says it takes comfort from other aspects of the SCA ruling, in particular the overturning of the earlier Pretoria High Court ruling that the disruptions on site did not constitute force majeure within the meaning of that term under the contract between the parties.

Aveng refutes claims by McLachlan that the roads agency now has a factual finding in its favour and is therefore entitled to retain the proceeds of any call it might make on performance and retention guarantees.

Aveng says the SCA ruling also confirms a vital aspect of the contract, “namely, that Sanral has assumed the absolute risk, through a comprehensive indemnification of the ASJV, for the validity and correctness of any demand that it may make…. In short: any demand made by Sanral is made at the risk that Sanral will have to be repay it to the ASJV with interest and all associated costs and damages.”

Both sides appear to be declaring victory from this judgment.

Aveng says it is happy that the earlier Pretoria High Court factual finding on force majeure was overturned, and that the position of both parties has been restored to what it was prior to the Pretoria High Court judgment. In other words, the termination dispute and the resultant liability of the parties to each other remains an open issue. Aveng adds that the enforceability of the joint venture’s related indemnity against Sanral has been endorsed, and substantial restrictions have been imposed on Sanral’s entitlement to make a call against the retention money guarantee.

The Aveng statement continues: “Sanral will no doubt be keenly aware of the gravity of any decision to make a demand, being a public entity and custodian of public finances and it is premature for Mr McLachlan to contend otherwise. We look forward to challenging Mr. McLachlan’s statements (made in Engineering News) in due course in the appropriate legal forum.

“For completeness we also note that on September 1, 2020, a unanimous full bench of the Mthatha High Court upheld the ASJV’s appeal against an order obtained by Sanral in 2019 against the ASJV, whereby Sanral had attempted to prevent the removal of plant and equipment from the construction site by the ASJV and other contractors. Ultimately, the ASJV was vindicated on appeal, with the full bench of the Mthatha High Court finding that in light of the uncontested evidence presented by the ASJV, the order that Sanral had sought against the ASJV was not appropriate.”

Sanral says in terms of the SCA ruling, the joint venture “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.”