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CAASA NEWSLETTER MAY 2025

The motivation behind this monthly newsletter is to provide better and more frequent communication to CAASA members, and to solicit suggestions and responses to the contents. We need input from you to ensure that the content of this newsletter, our webinars and annual conference remain both topical and relevant.

Any comments, suggestions or proposals please forward to secretary@adjudicators.co.za

CONTENTS:
Interdicting a Call on a Performance Guarantee
CAASA Mentoring Programme

INTERDICTING A CALL ON A PERFORMANCE GUARANTEE

Concor Construction (Pty) Limited (“Concor”) and Optipower, a trading division of Murray and Roberts Limited (Optipower) entered into a consortium agreement to provide construction services on a windfarm project. Concor had a 28,94% share in the benefits and liabilities of the project, Optipower held the balance, 71,06%. Murray and Roberts, and by extension Optipower, entered into voluntary business rescue proceedings in late 2024.

Lombard Insurance Company Limited (“Lombard”) provided a Performance Guarantee to the employer for the full value of the contract on behalf of the consortium. In return Old Mutual Insure Limited (“Old Mutual”) provided a Guarantee to Lombard covering Concor’s proportionate liability.

Seemingly as a result of the business rescue proceedings issues arose on the project resulting in the employer calling on the guarantee. Lombard accordingly called on Old Mutual for the portion it had guaranteed. Concor approached the Gauteng High Court on an urgent basis to interdict Old Mutual from paying and Lombard from making the demand on Old Mutual.

Concor believed the matter to be urgent because payment would be made where there was no liability. The demand was made fraudulently, or at least made in the knowledge that there was no liability, since the proportions of liability had been changed. Concor contended that the consortium agreement now provides for Optipower to indemnify Concor for 100% of all and any liability, therefore Old Mutual does not have any liability to guarantee.

The judge observed that the consortium agreement specifically provided that, if a member bears more than his agreed share of liability, he is indemnified by the other member. Concor was indemnified by Optipower in the event of such a circumstance. Furthermore the consortium agreement only binds the two members and does not affect the employer, Lombard or Old Mutual. None of these parties acquired rights in terms of the consortium agreement.

Optipower entered business rescue in November 2024. In terms of the consortium agreement Concor then became the only decision making member, and the only party with representation on the Executive Committee. In January 2025, this Executive Committee determined that Concor was indemnified by Optipower for all liabilities, and advised Old Mutual of such.

Shortly thereafter both guarantees were about to expire and both were renewed. Later Concor argued that providing the Old Mutual guarantee to Lombard was necessary in accordance with its obligations in terms of clause 4.2 of the consortium agreement. Clause 4.2 provided that any guarantee which is drawn down by the beneficiary is only drawn down in proportion to the percentage share of the consortium member who provided the guarantee. However if the guarantee was drawn down disproportionately the parties indemnified each other against any excess liability.

The judge considered that this did not require a party to provide a guarantee, but it did shed light on what the consortium agreement recorded regarding the liability borne by the parties and the associated remedy. Since Optipower now indemnified Concor fully no draw down on the Old Mutual guarantee was allowed.

The judge did not agree. Even after the Executive Committee determined that Optipower indemnified Concor for any and all amounts, Concor still went ahead and provided its guarantee, two months after advising Old Mutual that it no longer carried any liability. By doing so, prima facie Concor could not claim that there was bad faith on the part of Lombard or Old Mutual in drawing down and paying the guarantee. Even after Old Mutual issued the new guarantee Concor did nothing to retract the self-same guarantee.

Concor alleged that the guarantee had to be provided in accordance with its obligations under the consortium agreement. So then at that date, after the decision taken by the Executive Committee, and although Optipower now indemnified Concor for 100% of all liability, Concor nonetheless had to provide a guarantee for 29%.
In such circumstances the judge found it difficult to see what prejudice Concor would suffer as a result of Lombard paying the guaranteed amount to the employer, and that any prejudice could not be remedied at the proper time.

As a result the application could not be considered urgent, and even if urgent, the judge could not find that Concor had established a prima facie right that was at risk.
This is a yet further proof of our courts upholding the rights of the beneficiary of a bond or guarantee to call on such, provided the call conforms with the conditions and wording of the guarantee.

Concor procured the new Old Mutual guarantee and gave it to Lombard, in accordance with the consortium agreement. . It is difficult therefore to understand why Concor asserted that the call was fraudulent. However the fact that Optipower is in business rescue will complicate its remedies should Concor try and recover the amount from Optipower in terms of the 100% indemnity.

CAASA MENTORING PROGRAMME

There are few accredited training courses for adjudicators. MDA in conjunction with the University of Pretoria run such a course. RICS offers something similar. The Association of Arbitrators required members to complete the first two modules in order to be considered as an adjudicator (I am not sure this is still the case). There may be others.

Our mentorship programme is intended to supplement these courses, not to replace them.

After an introductory session held on Friday 30th May our programme is underway. The mentees will spend the rest of the year on the processes below. Each topic will be dealt with in a calendar month, kicking off with the Claims process in June and ending with ethics and standards in November.

We have eleven mentees who have signed up for the programme and we look forward to some lively interaction and positive feedback as we learn from each other.

	The claims process and declaring of a dispute (in each of the 4 standard form contracts)
	Appointment of the adjudicator and management of the adjudication process (including what to do if one party refuses to participate)
	Hearings, expert reports and requests for additional information
	Points in limine, issues of jurisdiction, interdicts and enforcement applications
	Writing the award and dealing with issues of costs
	Adjudicator’s ethics and standards including issues surrounding natural justice, bias, disclosures and confidentiality