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Kpone update - interdict judgement delivered and withdrawal of cautionary announcement
Group Five Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1969/000032/06)
Share code: GRF ISIN: ZAE000027405
(‘Group Five’ or ‘the Company’ or ‘the Group’)
KPONE GAS- AND OIL-FIRED COMBINED CYCLE EPC POWER PLANT UPDATE – INTERDICT
JUDGEMENT DELIVERED AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
As outlined to the market on SENS on 8 November 2018, Group Five had been informed by two bank
guarantee providers that the Kpone client had issued a written demand requesting that an amount of
$62,7 million be paid to the client in respect of guarantees issued on its contract in Ghana for delay
damages.
As the Group believed this call was improper, it instituted legal proceedings in the High Court of
Johannesburg to interdict the demands made by the client.
Judgment was handed down today, with the application made by the Group, to interdict Cenpower from
demanding payment on the bonds, dismissed.
In his judgment, Judge van der Linde confirmed that he was only required to rule on whether payment
on the demand bonds should be made. His decision was therefore based on the legal requirements in
terms of on-demand bonds, which states that bonds must be separated from the contract and its related
contractual claims and disputes. The judge confirmed that contractual claims and disputes presented
are complex, but as the bond represents a stand-alone financial instrument separate to the contract, it
had to be independently assessed. His ruling therefore does not address the contract, the contractual
claims process or provide judgment on whether the contractual claims or parties have merit.
Judge van der Linde stated that the only legal mechanism that was open to him to grant an interdict on
a demand bond is if fraud is determined. In his opinion, neither party has been fraudulent in terms of
the actions related to the calling of the bond.
Judge van der Linde referred to two previous legal court cases in making his decision. One of these,
the Coface court case, stressed that the “relationship between the owner and the banks (guarantors) is
unrelated and unaffected by the relationship between the owner and the contractor; these two sets of
relationships are inter alios acta. The banks must pay; the underlying disputes between owner and
contractor – barring fraud – none of their business”.
Judge van der Linde also stated that “the very point about such bonds is that they should serve as
unclouded immediate cash despite the underlying real dispute between and owner and a contractor as
to the respective legal entitlements of the parties”.
Judge van der Linde stated in relation to the contractual disputes, that “the underlying dispute is required
to be resolved in the manner provided for in the contract between them; and its determination may even
come to a conclusion wholly different from that which the owner has asserted to the banks. Moreover,
as happened in Dormell, such a wholly different conclusion, even if reached before bonds are called;
affords no deference at all to the calling of the bonds”.
In terms of the contract process, the Group will continue to progress its contractual rights and
entitlements through the alternative dispute resolution procedures, which includes the recovery of the
payment of delay damages in terms of the guarantees. This also includes a submission to the
International Chamber of Commerce (ICC) in Paris in relation to claims against the client. As outlined
before, Legal Counsel and Senior Legal Counsel, with experience in local and international dispute
resolution, have considered the various claims that the Group deems it is entitled to from various
counter-parties and confirmed that these claims have merit.
The judgment allows the client to proceed with its request for payment of the Group’s maximum liability
in terms of delay damages, to the amount of $62,7 million. In preparation of this potential judgement
the Group had already previously engaged with its financial partners and lenders who had, and continue
to, confirm their support in managing this liquidity event. This includes lenders agreeing to abide by the
creditors’ standstill agreement, established when the Group entered into its Senior Bridging Facilities
Agreement. The standstill agreement imposes limitations on the standstill creditors to take enforcement
action against Group Five. Further terms and conditions of this support, including the terms of
repayment of any debt, are being finalised with the lenders.
As disclosed in Group Five’s year-end results release, the Group maintains a rigorous liquidity model
which includes cash flow forecasts covering a period of 12 months from reporting date. These forecasts
were reviewed by independent international advisors as part of both an Independent Business Review
and an Independent Contracts Review, undertaken to review and evaluate the Group’s larger and
potentially riskier construction contracts. The outcomes of these reviews were incorporated into the
Group’s forecasts. These liquidity plans also considered and included the impact of any potential delay-
damages payment demand by the Kpone client on bank guarantees in issue for the contract prior to an
independent determination of any possible actual penalties due being made.
Stakeholders will be kept appraised of developments.
Withdrawal of cautionary announcement
As the interdict judgement has now been delivered, caution is no longer required to be exercised by
shareholders when trading in the Company’s securities.
16 November 2018
Sponsor
Nedbank Corporate and Investment Banking
Date: 16/11/2018 02:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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