Article

Factual Summary: An associated company of Basil Read (Pty) Ltd. (Applicant), namely Basil Read Construction (SL) Ltd ('BRC'), a company incorporated in Sierra Leone, was contracted to construct a railway line in Sierra Leone on behalf of African Minerals Ltd (Beneficiary/Employer). Pursuant to the contract between the parties, Applicant provided two advance payment guarantees for USD 7,800,000 and USD 5,000,000) to Beneficiary/Employer. The advance payment guarantees were issued by Nedbank Ltd (Guarantor) (pars 4 and 5).

According to Applicant, the Basil Read Group, which incorporates Applicant and its associated company (BRC), was involved in negotiations with Beneficiary/Employer over a long period of time to resolve moneys owing to the Basil Read Group pursuant to work performed by it for and on behalf of Beneficiary/Employer. As a result of these negotiations, the advance payment guarantees were extended on many occasions-the last when Beneficiary requested Guarantor to extend them to 31 May 2012 (par 5).

However, on 30 March 2012, Applicant was informed by Guarantor that a representative of Beneficiary had purported to present the guarantees to Guarantor for payment. Applicant then instituted an urgent application for an interim interdict (injunction) against Guarantor preventing it from making payment under the guarantees. Beneficiary was not joined as a respondent in the application, nor was the application served on it. Applicant argued that by presenting the advance payment guarantees for payment, 'knowing full well that it owes far in excess of these amounts to BRC', Beneficiary was 'devious'. It was this 'devious' conduct that Applicant sought to interdict in the urgent application. Applicant averred that it would suffer irreparable harm if Guarantor paid Beneficiary pursuant to the guarantees.

The interim order was accordingly granted by Monama J on 30 March 2012. No provision was made for the order to be served on Beneficiary, despite the fact that Beneficiary contended that its rights to payment under the guarantees were directly affected by the order. Although the order was not directed against Beneficiary, in form and in substance, clearly it was an order that was granted against it, as is evidenced from its terms. It was also Applicant's case that the advance payment guarantees were issued pursuant to an agreement with its associated company (BRC) and not between Applicant and Beneficiary.

Beneficiary then approached the court in terms of rule 6(12)(c) of the Uniform Rules of Court for reconsideration of the interim interdict (injunction) that was granted in its absence in terms of rule 6(12) on 30 March 2012 by Monama J, prohibiting Guarantor from making payment. Rule 6(12)(c) provides that a 'person against whom an order was granted in his absence in an urgent application may by notice, set down the matter for reconsideration of the order'.

In response to Beneficiary's application, Applicant then requested the court's permission to file a supplementary affidavit. Beneficiary opposed Applicant's request to file such a supplementary affidavit, asking the court to only consider the original founding affidavit that was filed when the case for the interim interdict was heard by Monama J. The matter was heard by Saldulker J.

Legal Analysis:

In the reconsideration application, Beneficiary argued that Applicant's failure to join it in the application for the interim interdict (injunction) and to provide for service of the application and the order on it, rendered the application that was granted fatally defective. Furthermore, the application of the Applicant to supplement the founding affidavit also had to be refused, as it was obvious that the supplementary affidavit was being used by Applicant to bolster the facts in the founding affidavit used in support of the original application. The present application therefore had to be reconsidered on the papers that were filed in the original application before Monama J (par 14).

Applicant presented various arguments to the High Court in an attempt to convince it to consent to the filing of the supplementary affidavit. Applicant contended that Beneficiary was acting unconscionably, its conduct evidencing a fraud perpetrated by Beneficiary on Applicant. Applicant sought to adduce further facts in the form of a supplementary affidavit, which were, it argued, relevant for purposes of the reconsideration application. For instance, because Applicant only learned that Beneficiary had presented the guarantees for payment on 30 March 2012, the application for an interdict was therefore of such an urgent nature, created solely by the Beneficiary's conduct, which was a peregrine, that there was no time to obtain leave to sue by way of edictal citation and that motion papers had to be drafted within a brief period on limited information (par 15).

In opposing Applicant's request to file a supplementary affidavit, Beneficiary argued that Applicant simply sought to bolster facts Applicant had already advanced in its main application, which were, inter alia, that Beneficiary's conduct was surreptitious, that the guarantees issued had lapsed, and that the demand was defective, so that Applicant was not bound thereby. Furthermore, Applicant contended that the guarantees issued by Guarantor were unenforceable in that it sought to guarantee payments in respect of a party which was not a party to the underlying contract (par 16). Beneficiary contended that the court should have no regard to the proposed supplementary affidavit, because it could not be considered for purposes of the reconsideration application (par 17). In contrast, Applicant argued that the court was not confined to the original application without reference to anything else, including other affidavits. This was particularly so in view of the serious allegations of fraud that was made against Beneficiary which called for an answer in the circumstances. Saldulker J, however, disagreed with Applicant's contentions in this regard and shared Beneficiary's view (par 22).

The court pointed out that a perusal of the original application and the intended supplementary founding affidavit, which was disclosed and allowed by the court only on the basis of reconsidering this application, did not raise any allegations of fraud by the Beneficiary. What Applicant alleged and raised was that Beneficiary was devious, acted surreptitiously and in bad faith in presenting the guarantees for payment in circumstances in which it was engaged in settlement negotiations with the Applicant, and had requested an extension of the expiry date stipulated in the guarantees, which had already been extended from time to time (par 24). The court stated that it is trite law that in a founding affidavit an applicant must set out the relevant and material facts it relies on. It was on the facts that were alleged in the founding affidavit of the original application that the interim order was granted. It also found that despite Applicant's contentions, significantly, no grounds of fraud were alleged against Beneficiary in the supplementary affidavit nor proved by Applicant on the part of Beneficiary. Applicant was also not allowed in this reconsideration application to file a supplementary affidavit to bolster its original application (pars 25 and 32).

The court confirmed that the advance payment guarantees created contractual obligations on the part of Guarantor to pay Beneficiary under the guarantees. Relying on Loomcraft Fabrics CC v. Nedbank Ltd. 1996 (1) SA 812 (A) as authority, the court also confirmed that the obligation of Guarantor was also wholly independent of the underlying contract between Applicant's subsidiary and Beneficiary and that Guarantor could escape liability only in the case of fraud on the part of Beneficiary (pars 26 and 28). The court said:

'[T]he existence of an alleged dispute between the applicant's subsidiary and the opposing party [Beneficiary] is no bar to the first respondent [Guarantor] paying the guarantee upon proper demand being made by the opposing party, nor can it provide a basis upon which an interdict can be granted restraining the first respondent from paying in terms of the guarantee. ... [T]he contractual dispute between the opposing party and the applicant's subsidiary, which is not a party to the guarantee, is wholly irrelevant to the first respondent's obligation to make payment to the opposing party in terms of the guarantees. Furthermore, the dispute between the applicant's subsidiary and the opposing party does not appear to relate to the advance payments that are the subject-matter of the guarantees.'

The court found that there was no suggestion in the founding affidavit that the conditions of the guarantee were not met (par 30). It confirmed the principle that an interdict restraining the guarantee from paying in terms of the guarantee could not be granted at the instance of the applicant, except on proof of fraud on the part of the beneficiary in relation to the demand made on the guarantor for payment (par 31). It also said (par 34):

'Where an applicant seeks to interdict the performance of an established contractual obligation as the applicant does in casu, it must allege and prove that it has such a right, at least on a prima facie basis at the interim relief stage, or at least when seeking final relief. This the applicant failed to establish on a prima facie basis. The payment of a demand on guarantee-in the absence of fraud-is valid, enforceable and, most importantly, lawful. The opposing party's conduct appears to have been lawful. The applicant has clearly not made out a case of fraud on the part of the opposing party on the papers ... .'

In delivering the judgment, Saldulker J stated (par 35):

'On many occasions, commercial cases involving millions of [South African] rands are brought to the urgent court on a hurried basis and ex parte, without knowledge of the parties whose rights are affected. The urgent court sometimes makes decisions on these matters on the basis of commercial urgency, being deprived of the benefit and advantage of argument on behalf of all the interested parties. Had there been service of the urgent application on the opposing party [Beneficiary] whose rights were affected by the order sought, and had the opposing party been given an opportunity to answer the allegations in the applicant's founding papers, the urgent court would have been better placed to arrive at a decision au fait with all the facts. It is doubtful whether the court would have made an order in the terms that it did. The latter view is strengthened by the fact that the applicant itself has sought to apply to supplement its founding papers, the very papers it relied on to justify the order it sought and was granted in the urgent court against the opposing party.'

The judge added (par 36):

'[T]he fact that the opposing party [Beneficiary] was not joined in the application and that service on the opposing party was not even provided for in the order sought and granted, where such order affected the rights of the opposing party, the order must be set aside. The opposing party's rights to the payment were clearly affected by the order that was sought. The applicant's ... application to file a supplementary affidavit is a belated attempt, in my view, to justify an order that should clearly not have been sought or granted without notice. In such circumstances, this court does not permit the filing of the supplementary affidavit.

...

To permit a litigant who has sought an order, without notice in terms of rule 6(12), against a party whose rights were affected by the order granted in the urgent court, to file a supplementary founding affidavit in a reconsideration application by the aggrieved party, is to afford him another opportunity to bolster the original application, especially where the aggrieved party has not filed any affidavits. Furthermore, to allow a litigant to do so would be to create an untenable precedent contrary to the function and the purpose of rule 6(12)(c). It would not redress the imbalances, the injustice and the prejudice resulting from the order sought and granted in his absence.'

The court held that the urgent interim order granted by Monama J on 30 March 2012 had to be reconsidered and accordingly set the order aside. There was also no merit in the orders sought by the applicant in this application and therefore all the orders sought therein were refused (pars 39 and 40).

* Professor of Law, Department of Mercantile Law, School of Law, University of South Africa.

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