Construction company Group Five has been issued with a notice of termination of its Kpone gas and oil-fired combined-cycle power plant project, in Ghana, by its client, Cenpower.
In a statement Group Five denied Cenpower’s entitlement to terminate the contract, saying the purported notice of termination was wrongful and constituted a repudiation of the contract.
Group Five, therefore, in turn, notified Cenpower that it accepted Cenpower’s repudiation of the contract and, accordingly, issued a notice of termination to the client, effectively terminating the contract with immediate effect.
Cenpower’s action followed after the company issued a demand in November for $62.7-million to be paid by Group Five for contract delay damages at Kpone.
Group Five had applied to the High Court of Johannesburg to interdict Cenpower’s demand, but the application was dismissed. The judge confirmed that the contractual claims and disputes presented were complex, but as the bond represented a standalone financial instrument separate to the contract, it had to be independently assessed.
Contractual ClaimsHis ruling therefore did not address the contract, the contractual claims process or provide judgment on whether the contractual claims or parties had merit, Group Five said in a statement.
Group Five’s annual financial statements point to a contingent risk of claims on guarantees relating to the the Kpone contract of a performance bond of $62.3-million, a retention bond of $41.5-million and an advance payment bond of $2.6-million. The construction company previously indicated that, notwithstanding any further potential delays to the project or to the dispute resolution process, the gross maximum delay damages exposure remained capped at $62.5-million.
Following Cenpower’s payment demand, issued in November, Cenpower received payment for the maximum amount of the delay damages, Group Five said.
Delay DamagesThe group continues to challenge the liability for delay damages, with liability to be independently determined through a dispute resolution mechanism set out in the contract.
Group Five outlined that the remaining value of on-demand bonds in issue, from financial institutions to Cenpower, after the settlement of the $62.7-million, amounted to $43.8-million.
In terms of the contractual process, Group Five will continue to progress its contractual rights and entitlements for payment of all amounts due and owing under the contract, including the recovery of delay damages (paid in terms of the guarantees) and claims against the client.
This includes a submission to the International Chamber of Commerce, in Paris, for the resolution of a dispute through expert proceedings, which is a considerably quicker process for resolution of disputes than arbitration. Good progress has been made in this regard, with the first dispute resolutions expected to be completed in early 2019.
The termination has also enabled the company to proceed to dispute resolution, in accordance with the provisions of the contract, for payment of all amounts due and owing to Group Five under the contract.