Molai wins $16 mn court battle with NSSA

Adam Molai’s Housing Corporation of Zimbabwe Pvt Ltd won a High court ruling yesterday barring the National Social Security Authority (Nssa) from calling on a $16mn Zimnat Lion unconditional and irrevocable performance bond after disagreements with the fund.
A High Court Judge Esther Muremba ruled in favour of the Housing Corporation of Zimbabwe, who had applied to stop the payment of the $16mn bond by Zimnat Lion as demanded by Nssa.
The dispute between the two warring parties arose when the Housing Corporation of Zimbabwe entered into a housing offtake agreement with Nssa.
As the developer, the Housing Corporation of Zimbabwe was set to acquire land and build 8 000 housing units with Nssa being the offtaker of all the housing units.
The parties had agreed on the terms and conditions governing their rights and obligations relating to the acquisition of land, construction and offtake of the housing units. The rights and obligations of the parties under the agreement were subject to the fulfillment of certain conditions, one of them being that the corporation, which is the applicant in the case, was to furnish Nssa, which is the second respondent, with an unconditional and irrevocable performance bond of US$16 million issued by an insurance company or a bank in the form acceptable to the second respondent and valid for the duration of the project. The condition was inserted for the benefit of the second respondent as it was guaranteeing the fulfillment of the contract.
Under the deal, Nssa was supposed to pay an offtake deposit of $16 million to the applicant for the housing units. Nssa paid the amount. A performance bond, also known as a contract bond, is a surety bond or a written guarantee issued by a third party guarantor which can either be an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. It ensures payment of a sum of money in case the contractor fails to fulfill its obligations of the agreement usually covering 100% of the contract price.
The Housing Corporation of Zimbabwe procured the performance bond from Zimnat Lion Insurance Company (Pvt ) Ltd for the project which began in 2017. However, Nssa wrote a letter of demand to Zimnat on July 25 2018 demanding payment of US$16 million. In the letter, Nssa argued the Housing Corporation of Zimbabwe had failed to fulfill its obligations to deliver the housing units.
Muremba dismissed this, pointing out that at the time of the hearing of the matter on August 21 2018, arbitration proceedings had commenced between the parties. This, she said, meant the order was not defective.
Nssa also argues that the affidavit was argumentative and voluminous, comprising 62 pages and a total of 180 pages yet only raising issues that the offtake agreement was varied and that Nssa had committed fraud. Muremba said while she was not impressed by the applicant’s voluminous papers, justice would not be served by striking it off the roll.
“If there are issues that are centred on the breach of the principal agreement, those issues should be resolved first before payment on the performance bond can be made. If payment is allowed to be made in every case where a demand is made by the beneficiary irrespective of the fact that the other party is disputing that it is in breach, then the party disputing breach stands to be prejudiced without being given an opportunity to be heard. This is in contravention of section 69 of the Constitution of Zimbabwe Amendment (No20) Act 2013 which provides that in determination of civil rights and obligations every person has a right to a fair hearing,” Muremba said in her judgement.
Muremba ordered that Zimnat be restrained from making any payment to Nssa in terms of the performance bond , that Nssa is restrained in seeking to execute on its letter of demand in relation to the performance bond or receiving any payment from Zimnat pursuant to the letter of demand and that Nssa is restrained from presenting Zimnat any further letter of demand.