TINASHE MAKICHI
Housing Corporation of Zimbabwe (HCZ), a company linked to businessman Adam Molai, has challenged National Social Security Authority’s (NSSA) demand for payment of $16 million on the grounds the developer failed to fulfill its obligations as enshrined in the contract.
According to challenge at the High Court seen by Business Times filed under Case Number HH579/18, HCZ is dismissing NSSA’s demands as fraudulent and constituting of false declarations.
HCZ entered into a written housing offtake agreement with the NSSA National Social Security Authority on July 14, 2017 in which HCZ was the developer and NSSA the beneficiary.
HCZ as the developer was to acquire land and construct 8 000 housing units with NSSA being an off-taker of all the housing units in question. HCZ agreed to sell to NSSA and NSSA agreed to purchase all the completed housing units of the housing development.
The parties agreed on the terms and conditions governing their rights and obligations relating to the acquisition of land, construction and off-take of the housing units.
The rights and conditions of the parties under the agreement were subject to the fulfillment of certain conditions, one of them being that the developer (HCZ) was to furnish NSSA with an unconditional and irrevocable performance bond of $16 million issued by an insurance company or a bank in the form acceptable to NSSA and valid for the duration of the project. This condition was inserted for the benefit of NSSA as it was guaranteeing the fulfillment of the contract.
Apparently, NSSA was supposed to pay an offtake deposit of $16 million to HCZ.The money was to be applied towards the purchase price for the housing units. NSSA dully paid this deposit to HCZ.
A performance bond also known as a contract bond is a surety bond or a written guarantee which is issued by a third party guarantor which can either be an insurance company or a bank to guarantee a satisfactory completion of a project by a contractor was procured.
It ensures payment of a sum of money in case a contractor fails in the full performance of the contract. It usually covers 100 percent of the contract price. It is not an insurance policy and if cashed by the principal, NSSA, the payment amount is recovered by the guarantor from the contractor.
In the present matter the HCZ then procured the required performance bond from Zimnat Insurance.
In its application, HCZ wants to obtain an order restraining and interdicting Zimnat (who is the guarantor) from making payment to NSSA and interdicting NSSA from executing on its letter of demand or receiving payment from Zimnat.
This is pursuant to the letter of demand NSSA wrote to Zimnat. HCZ seeks an order that restrains NSSA from presenting a further letter of demand to Zimnat pending finalisation of the arbitration proceedings currently pending between HCZ and NSSA.
“Thus the order the applicant seeks is worded as follows, the letter of demand issued by NSSA to Zimnat Insurance calling on the performance bond dated July 25, 2018 and received by Zimnat was fraudulently issued and is hereby set aside.
“NSSA shall pay the costs of the suit on a legal practitioner and client scale,” read the application. The housing development project commenced sometime in 2017. However alleging breach of contract, NSSA on July 25, 2018 wrote a letter of demand to Zimnat demanding payment of $16 million.
It averred in the letter that it was demanding payment because HCZ had failed to fulfill its obligations in terms of the housing offtakeagreement in that it had failed to deliver any completed housing units.
HCZ was advised of the demand by Zimnat by way of a letter dated August 6, 2018. It was advised that NSSA had made a call on the performance bond.
On August 7, 2018, HCZ wrote to Zimnat indicating that the call on the guarantee was fraudulent and constituted a false declaration because on March 15, 2018 it had delivered to NSSA 53 completed housing units.
HCZ also stated that there were a number of disputes that had been referred to arbitration including the termination of the housing off-take agreement between HCZ and NSSA
