Picture: ISTOCK
Picture: ISTOCK

Group Five’s attempts to stop Ghanaian company Cenpower Generation from calling up its retention and performance bonds suffered a setback on Friday when the Johannesburg High Court dismissed its interdict application.

The news sent the company’s share price on a free-fall, down 49% by Friday afternoon. Group Five's share price closed 30% weaker at 70c.

In terms of the judgment, Cenpower can proceed with its claim of $62.7m for delays in the execution of a 340MW fuel-fired thermal power station at Kpone, near Tema, 24km east of the capital, Accra.

Earlier  in November Group Five went to court to stop Cenpower’s demand for the money from banks HSBC and Standard Chartered. This follows a dispute between the construction company and Cenpower over the power station project.

The $410m project was meant to be commissioned in October. Group Five has blamed the missed deadline on faulty fuel from Cenpower. The provision of fuel was Cenpower’s responsibility, according to Group Five. 

Cenpower claimed the money from the banks for delay damages, a move that Group Five said was improper. Companies in the construction industry use performance bonds to mitigate the risk of a contractor failing to fulfil 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.

At Friday afternoon’s exchange rate the $62.7m amounted to about R880.5m. Group Five has a market capitalisation of R78.6m. In the year ended June 30, the company reported a net loss of R1.3bn.

Group Five has interests in the building, infrastructure and engineering sectors. It has instituted its own claims regarding the Ghanaian contract but has declined to reveal the value of them.

In 2014, Cenpower awarded Group Five the contract to design and construct the Kpone plant being built in the Tema industrial zone near Accra.

Group Five on Friday said that in his judgment, Judge Willem van der Linde did not deal with the merits of the contractual dispute between the two companies.

“[He) 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,” Group Five said.

The company said the only legal mechanism open to Van der Linde to grant an interdict was if fraud had been determined.

Van der Linde had found that neither of the two companies had been fraudulent, Group Five said.

“The very point about such bonds is that they serve as unclouded immediate cash despite the underlying real dispute between owner and contractor as to the respective legal entitlements of the parties,” the company said, quoting Van der Linde’s judgment.

Group Five said it would proceed with its own claims against Cenpower. The company has already made submissions to the International Chamber of Commerce in Paris in regards to its claims.

NjobeniS@businesslive.co.za