CIV/APN/173/85
IN THE HIGH COURT OF LESOTHO
In the Application of
HUBERT DAVIES CONSTRUCTION (PROP.) LTD Applicant
vs.
LESOTHO ELECTRICITY CORPORATION 1st. Responded
ASEA A.B. 2nd Respondent
TRANSELECTRIC A.B. 3rd Respondent
JUDGMENT
Delivered by the Hon. Mr Justice J.L. Kheola on the 20th day of September, 1985.
On the 17th July, 1985 the Applicant was granted a Rule Nisi m' the following terms
"A. The Applicant is granted leave to effect service of the Notice of Motion, Supporting Affidavits and this Order by an Attorney
practising as such in the Republic of South Africa in terms of Rule 5 on the 2nd and 3rd Respondents at c/o Bowman Gilfillan - Hayman Godfrey Inc., 2nd Floor, Prudential Building, 94 Main Street, Johannesburg (attention Mr. R.J. Scott).
B. The costs of this Application are to be costs in the main application
AND IT IS FURTHER ORDERED THAT –
1. A Rule Nisi be issued calling upon the 1st, 2nd, and 3rd Respondents to show cause on or before the 16th day of September 1985 why
1 1. The Honourable Court should not declare that a binding contract exists between the applicant and the 1st Respondent for the supply and installation of power transmission lines and substations for the project known as the "33KV Project in Lesotho".
1.2. Alternatively to 1 1.
In the event only for it being held that the finances for the said project by the Swedish Government will not be forthcoming, the
Honourable Court should not direct that the 1st Respondent permit the applicant to re-open negotiations with the Export Guarantee
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Department of the United Kingdom or other suitable sources to provide funding for the said project
1 3. The 2nd and 3rd Respondent should not be interdicted from undertaking any work or performinq any services which would interfere with the applicant's performances of the said contract and/ or from inducing the 1st Respondent to act in breach of its obligation in terms of the said contract and/ or from consipiring with the 1st Respondent to interfere with or prevent the applicant from performing the said contract or obtaining finance to enable the said contract to be performed by the applicant,
1 4. The 1st and 2nd Respondents should not be ordered to pay the applicant's costs of this application jointly and severely, the other to be obsolved and in the event only of the 3rd Respondent opposing the relief sort by the Applicant, directing the 3rd Respondent to pay the applicant's costs jointly and severely with the 1st and 2nd Respondents.
2. Directing that the order in terms of prayer 1 3 hereof be and act as an interim interdict with immediate effect, pending the return date
3. The Respondents be hereby given leave to anticipate the return date insofar as the operation of the interim interdict is concerned on 72 hours notice to the applicant."
On the return day (16 9 85) the confirmation of the Rule was strongly opposed by the Respondents On the 20th September, 1985 I discharged
the Rule with costs and intimated to the parties that my reasons would follow at a later stage because I would be out of the country
for about a month with effect from the 21st September, 1985
The facts of this case are common cause but the parties construe the meaning of the documents differently The applicant contends that there was a valid contract between itself and the First Respondent and that the latter was in breach of that contract when he subsequently awarded the contract to the Second and Third Respondents On the other hand the First and Second Respondents deny that such a contract ever came into existence.
On the 15th February, 1984 the Applicant issued an invitation to tender for the supply and installation of power transmission lines and
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substations for the project known as the "33KV Project in Lesotho." The invitation was extended to a number of electrical engineering contractors including the Applicant.
On the 30th August, 1984 the Applicant, received a telex from the First Respondent in which the Applicant was informed that the contract for the project had been awarded to the Applicant The telex reads as follows –
"The contract for the above project has been awarded to Hubert Davies Constructions (PTY) LTD., the appointment of Hubert Davies is made on condition that expert credit arrangements or any other source of funding is acceptable to the LEC Board and especially to the Lesotho Government which will provide guarantee. Letter to follow in a week or two."
The telex was followed by a letter dated the 3td September, 1984 which reads as follows –
Mr.. Alan Hormeyr,
Hubert Davies Construction {PTY) LTD.,
P 0. Box 6263,
HOMESTEAD
1412
Dear Sir,
RE AWARD OF A TENDER TO HUBERT DAVIES CONSTRUCTION (PTY) LTD L,E C 33KV PROJECTS R8 TO 8 5. MILLlON
My telex of August 30th 1984 concerning the above matter refers
As telexed the Board of Directors have awarded the contract subject to the following condition
"The Board resolved that the contract should be awarded Hubert Davies Construction Limited on condition that export credit arrangements or any source of funding is acceptable to the L.E C Board and especially to the Lesotho Government which will provide guarantee".
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(i) The type of funding to be approved by the Acting Managing Director/Deputy Managing Director and the Chairman of the Board of
Directors.
(ii) As discussed interest on the Loan from European Banks should bo between 5 and 10%.
(iii) Duration of the Loan between 10 and 15 years with a
moratorium of 2% years to 3 years during the construction period and first payment to be made six (6) months after the construction
completion date.
(iv) The project to be Re-engineered so that Cost-cutting measures can be achieved in the best interest of the two parties concerned
viz. Control Centre
(v) Construction to start as soon as possible so that the targets completion dates can be met as per the project document
To facilitate this, we will pay you 20% of the contract value as a down payment (1,5000,000) this will be applied to funding the line to the Airport until such time as the funding for the entire project is finalised (Approximately six weeks)
(vi) Final negotiations for funding to be sanctioned by the Acting Managing Director/Deputy Managing Director.
(vii) All payment/progress certificates will be signed by either the Acting Managing Director/Deputy Managing Director or the Chairman of L E.C
(viii) Performance Bond 5%.
(ix) Rentention fee 10% of the contract payable after 12 months on completion of the contract
Fulfilment of the above conditions will suffice for the L E.C. Board of Directors and Lesotho Government."
Yours faithfully,
E.M. SEBATANE
SECRETARY TO THE BOARD/DEPUTY MANAGING DIRECTOR AND ACTING MANAGING DIRECTOR.
I entirely agree with Mr Plewman for the Applicant that the telex dated August 30, 1984 followed by the letter dated September 3, 1984 unequivocally awarded the contract to the Applicant. However, the contract was subject to a suspensive condition that "export
credit arrangements or any other source of funding is acceptable to LEC Board and especially to the Lesotho Government which will provide
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guarantee." In the letter there were nine other conditions of which the relevant ones to this dispute are paragraphs (in) and (v) which read as follows
"(in) Duration of the loan between 10 and 15 years
with a moratorium of 2% years to 3 years during the construction period and first payment to be made six (6) months after the construction completion date,"
"(v) Construction to start as soon as possible so that the targets completion dates can be met as per project document
To facilitate this, we will pay you 20% of the contract value as a down payment (1,6000,000) this will be applied to funding the line to the Airport until such time as the funding for the entire project is finalised,, (Approximately six weeks) "
Our law is that 'where an agreement of purchase and sale is entered into subject to a suspensive condition, no contract of sale is there and then established, but there is nevertheless created "a very real and definite contractual relationship" which, on fulfilment of the condition develops into the relationship of seller and purchaser' (vide CoronJimas and another v, Badat, 1946 A.D 548 at p 558-59, Leo v. Loots 1909 T.S. 356 at p 371). In the present case the crucial question is whether the Applicant fulfilled the conditions regarding the funding of the project. As soon as the contract was awarded to it, the Applicant started negotiating for finance for the project from Export Credit Guarantee Department (ECGD) of the United Kingdom. Clearly EEGD finance could never be approved by the First Respondent and the Lesotho Government because the repayment period was five years which was much shorter than the repayment period stipulated in paragraph (iii) of the letter dated 3rd September, 1984 (Annexure JAR 12 to the founding affidavit) under which the contract was conditionally awarded to the Applicant The ECGD finance did not provide for a moratorium of 2½ years to 3 years during the construction period and first payment to be made six (6) months after the construction completion date
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The Applicant was still negotiating for better terms from ECGD when, on or about the 20th September, 1984 the First Respondent informed the Applicant that a loan at 3% interest was available from Sweden for the project The Applicant there and then stopped its negotiations
with ECGD and alleges that it was implicit in the request that the Applicant had to suspend its negotiations with ECGD. The Applicant
willingly abandoned its negotiations with ECGD and yet it was well aware that the Swedish money would be arranged by and channelled
through a Swedish company. An entirely new contract would have to be negotiated and a Swedish company would have to be a party to the new contract. In other words the Applicant and the First Respondent accepted that the original contract between them had come to an end and that they had to negotiate a new contract. That the Applicant accepted that a new contract had to be re-negotiated is very clear from a telex dated the 9th November, 1984 {JAR 16) from the Applicant to the First Respondent I shall repreduce the entire telex, it reads as follows –
"To The Chairman
Lesotho Electricity Corp,
From Chief Executive - J. Rowan
Hubert Davies Construction (H D C )
RE 33KV TRANSMISSION LINES AND SUBSTATIONS
Subsequent to L E C 's conditional award of the above contract to ourselves we wish to clarify developments as follows
Through Asea Sweden an offer of very low interest finance was made to L.E C in respect of the supply of materials for the project
Discussions were held among L EX, H.D C and Asea Sweden at which it was considered in the best interests of L.E C to accept the Swedish Finance Offer so that a Firm package of materials and low interest finance could be finalised by Asea This necessitated the placement of a direct contract from L E.C to Asea Sweden in order to meet the Swedish loan conditions
By the above mechanism the lowest interest loan would be secured for L E C it was hoped that the higher priced Swedish materials would not negate the low interest benefit
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H D.C. would then be awarded a contract for erection which would utilise the materials financed by Sweden.
In essence the above combination of finance, materials and erection would be the lowest cost solution for L.E.C.
The intention was that essentially Asea would be a subcontractor to H D C for the supply of materials.
It has not yet been possible to evaluate the combined finance - materials package from Asea and we will be discussing with L E.C.
Management the various options available.
J. ROWAN"
The Applicant admits in paragraph 2 that the acceptance of Swedish finance necessitated the placement of a direct contract from the First Respondent to the Second Respondent in order to meet the Swedish loan conditions. And in paragraph 4 of the same telex
Applicant alleges that the Applicant would then be awarded a contract for erection which would utilise the materials financed by Sweden. The Applicant uses the words "would then be awarded a contract", which obviously rsfer to the future. If the Applicant knew that the original contract was still in force, why was it looking forward to being awarded a new contract for erection? At that stage the minds of the parties were ad idem and they knew very well that the original contract had elapsed
By agreeing to ha t its negotiations with ECGD and by accepting Swedish finance, the Applicant deliberately placed itself in a very weak position because one of the most important conditions attached to the Swedish fiance was that a Swedish company must arrange the finance and use it in the project I find it strange that the Applicant was under the wrong impression that the Second Respondent was going to be a subcontractor for the provision of the materials bought with Swedish money. The condition was that a Swedish company would arrange and channel the money. There was no provision that another company other
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than A Swedish company would be allowed to participated in the erection and be paid with Swedish money.
When the Applicant realized that it was going to get a raw deal out of the new negotiations, it started reverting to the original contract which had elapsed and claiming that the contract was still enforceable. It seems to me that when the Applicant agreed to suspend its negotiations with ECGD and accepted an involvement in the negotiations for Swedish finance, it was taking a terrible risk which terminated the original contract.
As I stated earlier in this judgment the original contract between the Applicant and the First Respondent was valid and enforceable. in the sense that the Applicant could apply for an interdict if the First Respondent committed an act which would make it impossible, for the Applicant to fulfil the suspensive conditions under the contract. Thus if the subject matter of the agreement is a wood, the creditor can prevent the debtor pendente conditione from cutting down the trees, or if the subject matter is a house, the debtor can be restrained from demolishing it (Wessels' Law of Contract in South Africa Vol. 1 2nd Edition by A.A. Roberts, page 418 par 1358). However, in the present case the Applicant consented to the termination of the original contract and agreed to take part in the new negotiations which, unfortunately, failed to accommodate it in the new contract. In my view the Applicant cannot obtain confirmation of the Rule Nisi relying on a contract that was terminated by mutual agreement or by failure of the Applicant to get finance which complied with the conditions laid down in the contract. On this ground alone the Rule Nisi had to be discharged with costs.
There were other grounds on which the Rule had to be discharged In an application for an interdict the Applicant had to prove the following requirements
That it had a clear right,
That an injury had actually been committed or was reasonably apprehended,
That/ ........
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That there was no other satisfactory remedy available to it
The Applicant failed to prove that it had a clear right because the contract upon which it is relying was terminated by either mutual
consent or by failure on the part of the Applicant to negotiate for suitable finance acceptable to the First Respondent and the
Government of Lesotho. The Applicant has also failed to prove that there is no other satisfactory remedy available to it If the
Applicant has suffered any damages as a result of any breach of contract by the Respondents, it was entitled to claim damages against
the Respondents In the telex dated the 18th March, 1985 from the Applicant to the First Respondent with a copy to the Second Respondent, the Applicant informed the First Respondent that it would claim damages not less than R850,000. This is proof that the damages are quantifiable. It has also not been shown that if the damages were awarded to the Applicant, the Respondents' financial position is such that they would not be in a position to meet the award. Mr. Plewman referred me to the case of Ranch International (TVL) v. LMG Construction (City) 1984 (3) S A 861 in which it was held that as regards the remedies available to the builder in this event, specific performance is a remedy to which the builder is entitled as of right and, while the Court has a discretion, it cannot be withheld arbitrarily or capriciously. The employer may thus be compelled in forma specifica to co-operate with the builder. The Court's difficulty in supervising the performance is traditionally in the forefront of the objections to such an order, but this difficulty would appear to be imaginary rather than real
It seems to me that Ranch's case can be distinguished from the instant case in that in the former the respondent had done part of the work specified in the contract and was continuing to do so. The only complaint against it was that it was doing the work at a very slow pace and the applicant wanted to evict it. In the present case the Applicant
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has not done any work on the site .There is evidence that the Second and Third Respondents have already done or completed 60% of the work. I do not think that this is a proper case for either specific performance or an interdict because at the time the Rule Nisi was granted more than half of the work had been done by the Second and Third Respondents and it would not be in the interests of the First Respondent that the remaining part of the work should be done by a different company.
The most disturbing feature of the Applicant's case is the delay to institute the interdict proceedings As early as the 23rd November, 1984 the Applicant was already threatening the First and Second Respondents with legal action (JAR 18). In January, 1985 it had come to the knowledge of the Applicant that the contract had been awarded to the Second and Third Respondents In a telex dated the 18th March, 1985 (ERM4 Annexure to First Respondent's answering affidavit) the Applicant informed the Respondents that papers to bring an urgent application for an interdict against them had been prepared and that the papers were to be lodged in the High Court of Lesotho on Friday, March 22, 1985. Nothing was done until the 17th July, 1985 when the Applicant finally brought what it termed an urgent application for an interdict I do not think there was any urgency which entitled the Applicant to move this application without giving notive to the Respondents. He knew as early as January, 1985 that a contract had been awarded to the First and Second Respondents but in his affidavit sworn to on the 15th July, 1985 Mr. Rowan, General Manager of the Applicant says that he did not know whether the Respondents had already done any work under the contract awarded to them. It was his duty to find out if any work had already been started because as he correctly points out in paragraph 4 of his supplimentary affidavit
(page 83 of the record)
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"I respectfully state that should the matter not be dealt with by this Honourable Court by the latest September 1985 the relief the Applicant seeks will be rendered nugatory and academic, as the Second and Third Respondents will have entered upon the contract and performed the work the applicant is entitled to do." The fact of the matter is that the two Respondents had already done a substantial part of the work (about 60%) If the Applicant had made proper investigations before bringing this application, it would have found out that the application had already been rendered nugatory and academic by its inordinate delay in instituting these proceedings
In the case of Schweizer Renek Vleismaatskappy v Minister of Agriculture, 1971 (1) P.H. F11 (T) Trengrove, J. made the following remarks
"According to the information before Court it appears that the Applicant has known for more than a month of the circumstances about which he now objects. The matter has only become urgent because the Applicant delayed, and because the Second Respondent has opened the business, which the Applicant knew about long ago, or should have known about It was not at all necessary for purposes of this application, which amounts to the non-compliance with the audi alteram partem rule, to have waited so long before approaching the Court. Bearing these circumstances in mind I am not satisfied that the Applicant has advanced sufficient reasons why the Court should assist him now as a matter of urgency,"
The Applicant in the present case waited for about seven months before it instituted these proceedings. It cannot be heard to say that the matter has now become urgent On this ground alone the Rule has to be discharged with costs.
The Respondents have argued that the costs should be on the attorney and client scale I refused to do so on the grounds that I did not think that the Applicant had been guilty of dishonesty or fraud or that its motives had been vexatious, reckless and malicious, or frivolous (Real Estate Corporation v Central India Estates 1923 W.L.D 121, Fein v. Rabinawitz 1933 C.P.D. 289). It seems to me that the Applicant had a
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bona fide belief that a valid contract existed between it and the First and Second Respondents
For the reasons I have attempted to summarise above the Rule was discharged with costs for three counsel on behalf of the three respondents and costs of chartering an aeroplane to Swaziland by 1st Respondent.
J.L. KHEOLA
JUDGE.
14th November, 1985.
For Applicant Mr. Plewman
For Respondents Mr Kuny.
