Group Five in court battle to stop multimillion-rand claim over Ghana power project
The cash-strapped construction group approaches the high court to bar Cenpower's demands
Group Five, which is facing a claim of more than six times its market capitalisation, on Wednesday dismissed as baseless Ghanaian firm Cenpower Generation’s allegations of a breach of contract regarding a delayed power project.
In efforts to ward off Cenpower’s $62.7m claim, the struggling construction company on Wednesday told the High Court in Johannesburg it is not in breach of the contract for the 340MW gas and oil-fired combined cycle power plant in Kpone, Ghana.
Group Five legal representative Andre Gautschi disputed Cenpower’s claims that it is in breach of contract. “If you are going to make a demand, there must be a breach,” Gautschi told the court.
Gautschi said Group Five is not at fault for the missed October deadline for the commissioning of the plant. He reiterated the company’s assertion that the delay is due to contamination of the fuel provided by Cenpower.
“The provision of fuel is the client’s responsibility,” Group Five said on Tuesday.
The two companies are at loggerheads over Cenpower’s allegations regarding Group Five, which is building the $410m Kpone power station, and Cenpower’s recent written demand for $62.7m from Group Five’s bank-guarantee providers, Standard Chartered Bank and HSBC. The claim dwarfs Group Five’s market capitalisation of R129.1m.
Cenpower wants to recoup the money from Group Five’s performance and retention bonds. The value of the performance and retention bonds amount to 15% and 10% of the project’s overall costs, respectively.
Companies in the construction industry use performance bonds to mitigate the risk of a contractor failing to fulfill contractual obligations. If a project does not meet the contractual standards, the client can make a claim against the bond.
A retention bond protects the client after the project has been completed. “It is security for the owner [of the project] if there are defects. The money is used to remedy the defects,” Gautschi said.
Group Five has applied for an interdict against Cenpower’s claim, which the company has described as improper.
Gautschi questioned Cenpower’s claim on the retention bond as that type of bond does not cover construction delays.
“The retention bond is there to cover defects that have to be remedied,” he said. Cenpower’s reasons for laying claim to the retention bonds are obscure and sinister, he told the court. “It is a dishonest claim,” he said.
In its results statement for the year to end-June, Group Five said the maximum penalty it faces for missing the original deadline for completing Kpone is capped at $62.5m. It said the contract with Cenpower provides for claims from both sides.
Group Five has instituted its own claims regarding the contract but has declined to reveal the value of them.
The court granted an interim order, interdicting any payments to Cenpower until judgment had been handed down.
Group Five and Cenpower agreed on the interim order.
Final arguments are scheduled for Thursday.
“Judgment will be handed down in due course and the group will inform stakeholders once this has occurred,” the company said.
Group Five shares were down 4.35% to R1.10 on Wednesday.