Aveng - comment on Mtentu court ruling


Further to the SENS announcement dated 22 March 2019 relating to the Mtentu Contract and the dismissal of the court application by the Aveng-Strabag Joint Venture ("ASJV"), a joint venture between Aveng and Strabag International GmbH ("Strabag"), Aveng provides the following update and clarifications:
*the ASJV considers the dismissal of the application to be wrong and, based on legal advice, is appealing the judgment;
*the ASJV's view is that the performance security is not to be considered an "on-demand" bond, but rather of the nature of a surety or accessory obligation. SANRAL's rights to make a call against the contract securities are strictly regulated and limited in terms of the Mtentu contract (a principle which was in fact upheld by the Court although the application itself was dismissed);
*the ASJV is expressly and comprehensively indemnified for all losses resulting from any claim against the performance security which SANRAL is not actually entitled to make. The indemnity extends not only to the recovery of any amount incorrectly claimed by SANRAL but also all resultant damages, losses and expenses (including legal fees and expenses) resulting therefrom;
*SANRAL has conceded that any potential call on the ASJV issued Retention Money Guarantee is limited to a maximum of approximately R22.5 million (thereby protecting a potential maximum call of approximately R82 million), together with the Performance Security of approximately R245 million, and
*if a demand is made by SANRAL, the ASJV will take further action to protect its rights in this regard.

The ASJV considers this matter to be critically important not only to the ASJV but also to the broader South African construction industry which is plagued and held ransom by unlawful community actions of the nature experienced by the ASJV. The judgment does not change the fact that the Mtentu Contract has been terminated or require the ASJV to continue with its work on the Project. The board and management remain confident in its position and will continue to defend Aveng's position. Aveng continues to engage with relevant stakeholders but would highlight that it will not under any circumstances put its employees or contractors at risk. Further detail The ASJV terminated the Contract for Force Majeure on 30 January 2019. In terms of the provisions of the Contract, the termination took effect 6 February 2019.

SANRAL, despite itself having suspended the works on site for 83 days for the same reasons, took the approach that there was no Force Majeure and that the ASJV's termination constituted a repudiation/abandonment of the Contract. SANRAL could have denied the Force Majeure and sought to hold the ASJV to the Contract. However, SANRAL elected to terminate the Contract on 5 February 2019, which in terms of the provisions of the Contract would have taken effect on 19 February 2019.

The ASJV had provided 2 bonds ("Contract Securities") to SANRAL in connection with the Mtentu Contract, being (a) a performance guarantee ("Performance Security") in the amount of approximately R245 million and (b) a retention money guarantee ("Retention Money Guarantee") in the amount of approximately R82 million. Although the Contract Securities are described by SANRAL as "on-demand" bonds, SANRAL's rights to make a call against the Contract Securities are strictly regulated and limited in terms of the Mtentu Contract itself and the ASJV accordingly launched the urgent application.

Although it would not ordinarily debate, in the public domain, its views on litigation that it is involved in, the ASJV considers it necessary to note that the court upheld that the ASJV was entitled to protect its contractual interests and to ensure that the contractual mechanism was carried out before any demand was made on the Contract Securities (SANRAL had disputed this right and had threatened to make a demand on the Contract Securities while ignoring the underlying contract). However, as emerges from the ASJV's (Amended) Notice of Appeal:
* the learned judge ought then to have confined herself to whether (i) the ASJV had established a prima facie right to be protected by the interdict and (ii) the balance of convenience favoured the ASJV in granting the interdict against SANRAL; but
*having initially correctly conceded that she did not have to decide on the existence or otherwise of the Force Majeure event, the learned judge erred in making:
o findings as to the existence or otherwise of the Force Majeure event as well as the validity of the applicant's termination of the contract; and
o factual findings on disputed facts in urgent motion proceedings where there was no trial in relation to the disputed facts.

The ASJV remains confident that its right to terminate arose, after being prevented from executing works on the Project site by community unrest, protest action and threats of violence against its personnel, related to community demands made against SANRAL and that its entitlement and decision to terminate will be vindicated by the facts when properly ventilated and considered through the dispute resolution provisions of the Contract.